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Internal Audit Report for the 2007 Fiscal Year

Internal Audit Report for the 2007 Fiscal Year
Prepared by Greg Cliburn and Peggy Giltrow
Approved by Finance Committee 7/15/08


Summary
An internal audit committee to be headed by Greg Cliburn was appointed by the Finance Committee in January 2008 to conduct an audit of the Meeting's financial procedures. Greg and Peggy Giltrow conducted the internal audit in July of 2008.

Objectives of a Church Audit
(Adapted from The Work of the Church Treasurer)

1. To determine that adequate internal control procedures exist, and that such procedures are being followed.

2. To determine that all donations to the church were deposited and recorded correctly.

3. To determine that disbursements were properly authorized -- i. e., that the budget (including any adjustments during the year) was followed or that changes were approved and that authorized members approved payment of invoices.

4. To determine that records were maintained on plant and equipment items, and that adequate insurance coverage was obtained.

5. To determine compliance with federal and state regulations, including properly and timely paid employment taxes and income taxes, if applicable.

6. To recommend improved procedures and practices.

Findings

(This checklist is adapted from Friendly Audits - Guidance for Those Asked to Review Quaker Accounts and for Those Who Keep Them, by Elizabeth Muench, The Work of the Church Treasurer, by Thomas E. McLeod, and Zondervan Church and Nonprofit Tax and Financial Guide: 2006 Edition, by Dan Busby)

The Records in General

• Does the way in which the records are kept provide for the efficient accumulation of entries and avoidance of unnecessary or duplicate work?

The donation, receipt, and payment records are kept in a church-specific software program called CCS Accounting, which is designed to track donations and produce appropriate reports. Bank transactions are immediately available online and online billpay is used for almost all checks.

• Are the records up to date, with entries made soon after events occur?

Yes, payment entries are made in the CCS at the same time as the checks are initiated, and the data from the Collection Record is generally entered within a week of the collection.

• Is the arithmetic accurate? Do sub-totals actually add up to the grand totals in the records and financial reports?

The CCS bank accounts activity report is continuously reconciled with the online bank records.

• Are financial reports prepared and presented often enough to catch any abnormalities while there is hopefully still time to do something about them?

Reports are presented each month in business meeting; the Finance Committee receives the reports prior to business meeting.

• Do the financial statements include a statement of financial condition (“balance sheet”) and statement of income and expenses?

The treasurer does not normally present a standard balance sheet because the meeting currently has only bank accounts as assets and no liabilities; the normal monthly report of income and expenses includes the balances in funds and bank accounts.

• Does the treasurer keep a special file of the minutes that relate to the meeting’s financial affairs— i.e., budget approvals, budget changes, general financial policies, opening and closing bank accounts, accepting earmarked contributions, etc.—so that they can be easily referred to?

All business meeting minutes are contained in the Meeting’s newsletters. The treasurer maintains a file of newsletters. Also, all newsletters from 2006 to date are fully indexed online for easy reference. The clerk of Finance Committee maintains a separate file of minutes of all Finance Committee Meetings.

• Are the records kept in a safe place? How long are old records kept and where? Has the yearly meeting set up a central archive for important records and are key financial records sent there after an appropriate period?

The records required for regular use are kept in the treasurer's home; the most important documents are kept in a safe deposit box in the care of the trustees. Meeting-approved financial procedures include retention and disposition directions.

• If the meeting has property, furniture or equipment, is there an inventory listing all the assets of significant value and stating briefly when and how they were acquired and what their value was at the time of acquisition? Is this inventory kept with the rest of the financial records and updated annually?

No general inventory is kept, but the meeting has an inventory of the art in the meetinghouse -- which is most of the valuable objects.

Receipts

• Are cash handling procedures in writing?
Yes.

• Are procedures established to care for offerings and monies delivered or mailed to the church office between Sundays?

Yes, the resident secures them until a member of Finance or the treasurer collects them.


• Are all checks and cash received recorded promptly and deposited in their entirety?

Yes. The resident may write a check for the cash which she has collected and then use the cash for personal use, but apart from that no collected cash is used before it is deposited.

• Most unprogrammed meetings do not “pass the plate” on a weekly basis but instead receive individual contributions in one or more annual installments. Is there a confidential, detailed listing of these contributions as they are received? Does the treasurer acknowledge them by means of annual letters or individual receipts? If the records are not in order it may be necessary to check with individuals to be sure that contributions have been properly recorded and attributed.

Yes. Donations are tracked in a program designed for that purpose. Contributions are acknowledged on an annual basis (or immediately in special circumstances.)

• In the case of meetings that do pass a collection plate—or otherwise receive multiple cash contributions—are such receipts always counted and deposited by a committee, not by one person alone, and does the membership of this committee rotate two or three times a year?

No. Because the Meeting is small and donations and payments for use of the building arrive through the week, it has not been possible to design a method for having two persons handle collections. A procedure for handling collections is included in the financial procedures, and it provides for two members of the Finance Committee to rotate responsibility for the weekly collection and deposits.

• How are earmarked contributions and funds handled? How does the meeting assure that they are spent for the purpose for which they were contributed? If the treasurer is authorized to receive contributions for transmission to another organization, this needs to be minuted by the meeting. Has this been done?

Earmarked donations and funds are tracked and reported on regularly to the business meeting.

• If no goods or services were provided (other than intangible religious benefits) in exchange for a gift, does the receipt include a statement to this effect?

Yes.

• Are the donations traced from the weekly counting sheets to the donor records for a selected time period by the audit committee?

Weekly counting sheets are now in use. Consistency of use could be improved, but they are a valid tool for use in the internal audit.

Expenditures

• Are all expenditures made in accordance with an approved budget? Has the meeting minuted its approval, preferably beforehand, for any expenditures not budgeted?

Almost all expenditures have prior approval by the business meeting, but occasionally the treasurer must pay bills for which no specific authorization is available until the next business meeting; in these cases the treasurer usually consults with the clerk or Finance Committee.

• Are all expenditures, except small ones from petty cash, made by check? Are all expenditures from petty cash funds supported by written vouchers?

Yes.

• Are expense accounts submitted promptly, adequately supported and, if necessary, approved by a committee clerk before payment?

Yes.

• Are supporting documents (bills, etc.) for checks marked in some way to avoid duplicate payments and facilitate identifying which check paid which bill?

Yes.

Bank Accounts

• Are personal funds and meeting funds kept strictly segregated from each other?

Yes.

• Are all checks prenumbered and all numbers accounted for?

Yes.

• Are all checks recorded when issued?

Yes.

• Are all unused checks kept in a safe place?

Yes.

• Are blank checks ever signed in advance? This should never be done.

No.

• Are all voided checks retained and mutilated?

Yes.

• Are bank reconciliations prepared whenever a statement is received? Differences between the bank balance and the book balance should be infrequent and promptly resolved.

The CCS bank accounts activity report is continuously reconciled with the online bank records.

• Are there many outstanding checks? If so, why? Checks that have been outstanding for six months should probably be voided and those out standing for a year certainly should be.

No. Also, the online billpay system provides a notification when a check is outstanding more than 30 days.

• When a check is voided is a corresponding adjustment made in the expenditure accounts?

Yes.

• Look at the backs of the returned checks: have they been cashed by the person or business that they were made out to? If not, why not?

Checks are not returned by the bank; however, there is no indication that any check was not cashed by the person to whom it was written.

• Are meeting bank accounts provided with alternate signers in case of illness or vacations?

Yes.

• Do at least two of the meeting’s officers have an up-to-date list of all the meeting’s bank accounts, with the names and addresses of the authorized signers? Are all changes of authorized signers or the opening and closing of bank accounts made only after being properly minuted by the monthly meeting?

Yes.

• What taxpayer identification number is used on the meeting’s bank accounts? If the meeting does not have its own number, should it?

The Meeting has a TIN.

Information Reporting

• Has the church filed Form 990-T for gross unrelated business income over $1,000 per fiscal year, if required?

There is no unrelated business income, so no 990-T has been filed.

• Did the church make payments to recipients (other than corporations) of at least $10 in royalties or at least $600 in rents, payments for services, prizes and awards, or medical and healthcare payments?

Yes, primarily for cleaning and repairs.

• Did the church obtain W-9 for all applicable recipients and file Form 1099-MISC?

No. The W-9 form was provided to the cleaning person but she failed to return it and the treasurer did not follow up. Another W-9 has been sent to her for 2008.

General

• Is the church in full compliance with restrictions imposed by the church property deed?

Yes.

• Did the church refrain from participating in or directly opposing a particular candidate’s political campaign?

Yes.


Test of Transactions and Audit of Cash
 
The purpose of the test of transactions is to determine that the church's established procedures are being followed, and that the procedures can be relied upon to produce financial statements presenting fairly the cash transactions of the church and the assets, liabilities, and fund balances resulting from cash transactions. The objective of the test of cash is to determine that cash as shown by financial statements is stated properly and that cash is under the church's control.

1. Obtain:
a. A list of individuals authorized to sign checks.
b. Beginning and ending bank reconciliations for the test period, including lists of outstanding checks.
c. Bank statements and canceled checks for both the test months and subsequent months.
d. Cash receipts and disbursements records.

2. Select test months -- The last month of the fiscal year and at least one other month.
a. Trace transactions between the bank and the books for timeliness and completeness.
b. Are there any unusual transactions in the bank statement immediately following year-end?
c. Are there any checks that have been outstanding over three months?
d. Compare monthly statements to the books and to financial reports.

3. In addition, the written procedures for the Treasurer and Finance Committee should be reviewed each time an audit is conducted.

The audit committee traced the bank and the books transactions for July and December of 2007 and compared the available collection records to the receipt journal entries. No discrepancies were found. The written procedures were reviewed and are up-to-date.

The last audit listed thirteen recommendations for action by the Treasurer and Finance Committee. Recommendation number one has been incorporated into each annual audit as item 3 above. Recommendation number 5, a general inventory, is still to be accomplished. All of the other recommendations were taken care of before June 30, 2008 and incorporated into the written procedures as appropriate.

 

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