Category

Audit

Mar 26
0

12 Steps to Improve Internal Controls

By | Accounting, Audit, Fraud, Internal Controls, MIP Fund Accounting, Nonprofit | No Comments

There’s no better time than now to review and analyze your organization’s internal controls. We’ve broken up the intimidating task of updating and maintaining proper internal controls while being slightly more focused and productive, with these 12 simple yet necessary steps.

Step 1: Map out your current processes and workflows. Detail out internal accounting procedures with a simple step-by-step checklist or list of rules. Clearly identify how long each step of authorization should take to process.

Step 2: Identify clear separation of duties. Open your workflow documentation back up and assign owners for each procedure, and other process owners who may be involved in authorizations, approvals, or reviews.

Step 3: Bring in an outside expert to review your current processes. Leverage outside expertise like certified fraud examiners (CFEs) or attorneys specialized in evaluating and improving internal controls. They can help identify any gaps or vulnerabilities.

Step 4: Find a new home for your documentation. You’ll want to maintain documentation of your processes in a commonly-used location that is easily accessible by staff. It will need to be continually updated as needs shift throughout the year.

Step 5: Review security permissions in your fund accounting system. Your technology should fully support your desired workflows encompassing your separation of duties. Update your security settings to limit system access, based on defined roles and security groups.

Step 6: Set up monitoring alerts. Ideally, your fund accounting system can be set up with active monitoring alerts to quickly notify other staff about key activities, such as when checks are printed, but not recorded, or vendor hold payment status is changed.

Step 7: Create a digital audit file. Here you’ll organize and maintain artifacts for future audits, including bank statements and reconciliations, investment summaries, fixed asset and depreciation schedules, documentation of donor pledges and grant funds received, and year-end accounts payable and expenses.

Step 8: Update your employee onboarding. Now that your documentation is up to date, you’ll need to update your new employee onboarding to reflect the changes. It’s important to promote a shared commitment of financial responsibility from the start with a new employee.

Step 9: Set a reoccurring monthly budget review. The budget is not just a planning tool – this is a key internal control. Schedule monthly budget reviews for reconciliation, explaining variances to the budget keeps proper checks and balances across departments.

Step 10: Recruit for an audit committee. You’ll want to institute a strong audit committee of independent members (typically from the board) who are familiar with finance and accounting. They should select and review the independent external auditors and help monitor for fraud.

Step 11: Schedule an internal audit. The best prepared organizations perform internal audits to ensure key control activities are being followed, and to identify any reconciliation discrepancies. Find an appropriate time for your team and stick to the date.

Step 12: Set up quarterly staff trainings. You must reinforce your controls with periodic trainings. Take the time now to get these on the calendar and build into the agenda time to discuss any shifting accounting standards for which you may need to adjust.

Remember, the objective of internal controls is to put “checks and balances” in place to help manage and preserve the charitable assets of the organization. It builds a foundation of policies and procedures that ensures employees act responsibly and ethically and prepares the organization for expected scrutiny (for example, audits and budget reviews) and tough to predict events (for example, staff turnover).

Here are a few resources to help you implement the 12 Steps to Better Internal Controls:

 

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Mar 05
0

Financial Audits Improve Nonprofit Operations

By | Abila, Accounting, Audit, Data, MIP Fund Accounting, Nonprofit | No Comments

Are you getting the most from your nonprofit’s annual audit? Financial audits aren’t just a necessary exercise to meet the requirements for keeping your nonprofit organization’s status or to please donors and board members. They provide valuable, useful information that can help you improve many areas of your organization.

A study conducted by Deloitte and reprinted in the Journal of Accountancy surveyed 300 executives and 100 members of audit committees nationwide. Their findings point to the usefulness of audits as a business evaluation tool.

  • 79% of executives and 91% of audit committee members agree that financial audits help them identify opportunities to improve business performance;
  • 46% of executives and 62% of the audit committee members believe that audits helped them identify business issues that they might have missed without the audit information;
  • Companies that review and utilize audit information achieved strong growth over a three to five year period (as noted by self-observation.)

Clearly, there is value not just in the audit process itself but in the use of the audit findings for analysis of current operations,

Quality Counts When It Comes to Choosing an Auditor

Throughout the survey, respondents cited the quality of the audit as a key element of a useful business improvement tool later on. A good-quality audit starts with selecting an auditing firm with experience helping nonprofits both through the auditing process and to improve later on.

Audits can provide more than information into the company’s financial state. They can provide market and industry comparisons and analysis. Process analysis, identification of gaps and potential for improvement can also be part of the audit findings. Each of these elements provides an item that can be used as a springboard for action later.

When selecting an auditing firm, look for one with experience working in the nonprofit world. It may also be helpful to find a company that provides more than auditing services. Business consulting, nonprofit consulting, and other related services offered by the auditors mean that they can infuse additional insights into the audit process and continue working with your nonprofit after the audit to implement the changes that you wish to make.

Data and Analytics

Another new area in which nonprofits are finding useful information is the data and analytics that are derived from the audit. Many aspects of a nonprofit’s business can be analyzed. Examining items such as expenses like leases, long-term contracts and expenditures can reveal places in which money can be saved. Long-term donor patterns, grant analysis, and areas where the nonprofit’s work has shifted over the years may also be revealed from an analysis of data patterns found within the audit and the nonprofit’s financial statements.

It takes a special auditor to be able to analyze and detect such patterns. If you aren’t looking for them or for places from which you can derive such information, it can easily be overlooked. Again, choosing an auditor with the insight and experience in the nonprofit world to assist you with your business improvements it the key to success.

Are You Using Your Audit Information?

Are you using all of the information that can be obtained from your most recent audit? According to the previously mentioned Deloitte study, about 35% of the nonprofits responding to the study rarely or never use the information obtained through the audit for improvement. Talk about a missed opportunity!

Why aren’t they using the information? Approximately 48% percent of executives surveyed state that they do not have a process in place to use the information post-audit.

Therein lies the key – process. Develop a process now to use the information obtained from this year’s audit to improve your nonprofit. Begin now to find an auditor who can partner with you to develop a series of action items for follow up. Put in place the teams, groups, committees or leaders within your company who will be accountable for following up on the audit information.

By using these techniques, you can use the annual audit as both a financial document and the start of process improvement.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

 

Jan 29
0

Getting Your Staff Ready for the Annual Audit

By | Accounting, Audit, Nonprofit | No Comments

As the manager of a nonprofit organization, you’re probably all-too familiar with the paperwork aspect of the annual nonprofit audit. Documents must be managed, maintained, and updated, and everything prepared for the auditors.

There’s a second part of managing the audit process that’s equally as important: managing the people who are part of the audit. To help you with this aspect of auditing, we’ve put together the following tips.

Schedules

  • Make sure you schedule the audit well in advance of any deadlines. Be sure to set aside enough time for your staff so that they can be available to assist the auditors in any way necessary.
  • Contact the auditing firm and confirm that the dates for the audit are available. Auditors’ schedules may be booked months in advance. Be sure to confirm again the week prior to the scheduled audit to ensure nothing has slipped through the cracks.
  • When scheduling your audit, offer three days and times that work for all. Allow the auditors to choose the one that works best for them.
  • Clear calendars to make sure no offsite or other meetings will interfere with the audit schedule.

Logistics

  • Provide a clean, private, well-lit workspace for the auditors to use while they are at your company.
  • Create the necessary computer and WIFI access in advance so it is ready for the auditors immediately.
  • Ensure that a telephone line is also available for the auditors.
  • If parking spaces are reserved at your building, make sure you take the necessary steps to secure parking spots for the auditors.
  • Provide them with directions on how to get to your building.

Communications

  • Inform the internal staff that an audit is taking place. Reassure them that it is both a necessary and beneficial aspect of nonprofit management – it’s not like a personal IRS audit, but more of a consultation to ensure that your nonprofit is operating correctly.
  • Make sure that staff understands they can’t use conference rooms or other workspaces that the auditors are using during the week.
  • Ask staff not to interrupt the auditors while they are working.

Following Up on the Audit

Once the audit is over, it will take your firm several weeks to prepare the materials and provide them to you. Take time to review them and discuss the findings with the auditors. The final report can then be presented to your Board of Directors.

As a final step, share the audit with your entire team. Although not required as part of a nonprofit audit, the more information that you can share with your staff, the better they will understand what’s going on within the organization as a whole. They’ll feel invested in the outcomes and better informed about the financial aspects of the organization. The more information they have, the better they can do their jobs.

Preparing for an audit can be stressful, but if you’re organized and take the appropriate steps, you can ensure that the entire audit process from start to finish goes smoothly. Both your auditors and your Board will thank you for the extra effort made to ensure a streamlined process.

Welter Consulting offers auditing as one of our core services for nonprofits. Our experience encompasses audits, consulting, software selection and more for the nonprofit industry. Please contact Welter Consulting at 206-605-3113 for an appointment.

Jan 15
0

How Good Are You at Detecting Nonprofit Fraud?

By | Accounting, Audit, Fraud, Nonprofit | No Comments

The average nonprofit fraud loss averages around $600,000, according to the NonProfit Times. With so much at stake, understanding your fraud IQ is important. How much do you know about nonprofit fraud?

Principles of Fraud Risk Management

The principles of fraud risk management include:

  1. Fraud risk governance: Establishing and communicating a fraud risk management program demonstrates expectations to all stakeholders. A written program which can be shared is a great idea.
  2. Fraud risk assessment: This includes items such as employment checks, ensuring people take vacation time and more.
  3. Fraud control activity: Selecting, developing, and deploying fraud risk management activities. A good example is a set of internal controls.
  4. Fraud investigation and corrective action: Establishing a communication process to investigate and correct any suspected fraud. Also includes a written, established and coordinated approach to the investigation.
  5. Fraud risk management and monitoring: Every organization should select, develop, and perform ongoing fraud risk management evaluations. Look at these five principles and see how they apply throughout the organization. Any gaps should be addressed immediately.

Data can, and should, be used throughout all of the fraud risk assessment and analysis activities. As we’ve shown in a previous article, Benford’s Curve is one example of how data can be used, albeit a simple use, to indicate possible fraud. CPAs, auditors, and others can use more sophisticated techniques to detect errors and fraudulent activities.

Whose Responsibility Is It, Anyway?

Who on staff is responsible for fraud detection, management, and corrective actions? Your senior management team is ultimately responsible for all of these actions. The Board of Directors provides oversight and guidance, but the “buck stops” at the desk of your senior leadership team.

Fraud Risk Assessment

Fraud risk assessment includes considering all potential routes of fraud. This includes internal and external areas at risk as well as personnel who might have access to materials which enables them to commit fraud.

Even with the best risk assessment and controls in place, it may be impossible to prevent all types of fraud. It is still critical for nonprofit organizations to have fraud risk assessment measures in place, internal controls, and other measures enacted to prevent, limit, and detect fraud.

Stopping Fraud Starts with You

Much is at risk when it comes to nonprofit fraud. It’s not just the potential loss of $600,000 or so, which is, of course, a substantial number. It’s also the risk of losing the trust and faith of the public.

Nonprofit organizations are under heavy scrutiny now from a public who has grown weary of extravagant spending. People want to donate to their favorite charities, causes, and membership organizations, but they won’t do so if they feel their money is wasted. Fraud is one example of waste that many  donors feel can be prevented.

Your organization works hard on behalf of its members, donors, and beneficiaries. Ensuring that you take all necessary steps to prevent fraud and detect it if it occurs is essential to building and keeping the public trust.

For more information on fraud prevention, see:

About Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.