1. Internal Controls for County Federations
Jean Prichard, Partner, CPA, CA, CFP, Licensed Public Accountant – BDO Guelph
Client name - Event - Presentation title

2. What are internal controls?
2 | BDO Seminar for OFA
2 | Presentation title

3. Internal Controls in County Federations
What are Internal Controls?
Accounting term
A system of mechanisms, rules and procedures implemented by an organization to ensure the integrity of financial and accounting information
What is the problem we are trying to solve?
Lots of variations in how financial management is done at County Federations
Hard for new participants to learn system in some cases (Training)
For very small Federations, there may be almost no system
Some Federations have accumulated a lot of reserve funds – even more need for good reporting to show fiduciary duty being met

4. Internal Controls in County Federations
What are Internal Controls?
Examples are:
Dual signatures on cheques
Regular financial reporting in a prescribed format
Review of information by someone other than the person who prepared it
There are many possible internal controls. These are just some examples

5. Why do we need internal controls?
5 | BDO Seminar for OFA
5 | Presentation title

6. Internal Controls in County Federations
The Purpose of Internal Controls
Safeguard assets
Ensure financial reporting is reliable
Transparency is key
Transparency example – what if more than one family member jointly managing funds
What if two family members have signing authority (one paid, one not, both volunteer, options)

7. Internal Controls in County Federations
The Purpose of Internal Controls
Promote operational efficiency
Enable membership to feel confident in the organization – enhance reputation
Protect those who are handling the money and finances

8. Internal Controls in County Federations
Key Problem Areas
Difficulty achieving segregation of duties in the finance area
Big picture – for many small or medium sized NPO there are some key challenges

9. Internal Controls in County Federations
Key Problem Areas
Difficulty achieving segregation of duties in the finance area
For example, the same person enters expenses in the accounting system, then issues cheques, then does the bank reconciliation

10. Internal Controls in County Federations
Key Problem Areas
Lack of a documented manual or description of procedures to be followed
Makes it hard for someone new coming in or if something happens to a member
OFA wil be following up with questions and suggestions to help provide sample documents, checklists and updated policies as well as training.

11. Internal Controls in County Federations
Key Problem Areas
Board members unfamiliar or uncomfortable supervising staff (if any)
Board members may not be sure what they are “allowed” to say or ask in terms of questioning or checking on financial reporting details

12. Internal Controls in County Federations
Key Problem Areas
Board members unfamiliar or uncomfortable supervising management (if any)
Board members may not feel comfortable interpreting financial information and knowing what questions to ask

13. Internal Controls in County Federations
Key Problem Areas
Board members unfamiliar or uncomfortable supervising management (if any)
Board members may not feel comfortable interpreting financial information and knowing what questions to ask
Board members unfamiliar with fiduciary responsibilities
For example, board members should be ensuring that, if there are employees, the proper source deductions have been remitted to CRA for payroll – they can be held personally responsible.

14. Internal Controls in County Federations
Key Problem Areas
Board members unfamiliar with fiduciary responsibilities
Board members can be held personally liable for CRA remittances and reporting (e.g. T4A’s)
For example, board members should be ensuring that, if there are employees, the proper source deductions have been remitted to CRA for payroll – they can be held personally responsible.**NB more slides discussing this in the afternoon – HR topic

15. Day to Day Operating Controls
Let’s break this down into a few key operating controls. These are not in order of importance.
15 | Presentation title
15 | BDO Seminar for OFA

16. Internal Controls in County Organizations
Specific Areas to Review
Cheque signing procedures
and authority
Handling of cash
Authorization of payroll
Handling of petty cash

17. Internal Controls in County Organizations
Specific Areas to Review
Use of corporate credit cards
Review and approval of expense reports
Use of Online payments
Financial reporting and budgeting

18. Things do not happen. Things are made to happen.
SOLUTIONS
Things do not happen. Things are made to happen.
John F. Kennedy
Section divider
The section divider slide is an effective way of breaking up your presentation into chapters. Five section dividers have been included in this template.
Section divider slides are for this use ONLY and should never be adapted to create additional slide types or styles.
Note: This slide does not exist as a ‘slide master’. Therefore it is recommended that you copy and paste this slide into your presentation.
18 | BDO Seminar for OFA

19. Cheque Signing Authority
Problems:
Single signer creates risk of unauthorized payments
Recommendations
Second signing authority especially over a dollar threshold
Even better – second signing required on all cheques
Need to ensure Bank is apprised of proper signing authorities on a timely basis
It’s ok to have 2 of: two staff, two board, one of each etc – as long as it’s 2 signatures

20. Cheque Signing Authority
Problems:
Cheque signers not reviewing supporting documentation
Recommendations
Ensure documentation of invoice package by cheque signers

21. Cheque Signing Authority
Problems:
Different person (from cheque writer) not reviewing bank statements and bank reconciliations on a timely basis
Recommendations
Establish a protocol by which someone else (treasurer, other board member) reviews bank statements and reconciliations on a timely basis

22. Cheque Signing Authority
Problems:
Different person (from cheque writer) not reviewing bank statements and bank reconciliations on a timely basis
Recommendations
Establish a protocol by which someone else (treasurer, other board member) reviews bank statements and reconciliations on a timely basis
If automatic payments happening, this procedures provides a control
e.g. auto pay of Hydro, phone etc – want someone else reviewing these withdrawals
Also Board motion would be prudent

23. Cheque Signing Authority
Problems:
Different person (from cheque writer) not reviewing bank statements and bank reconciliations on a timely basis
Recommendations
Board agenda – Treasurer’s report – standard item:
Review Financial Statements
Review Bank statement
Review Bank reconciliation
Review budget to actual comparison
e.g. suggestion for Board agenda

24. Cheque Signing Authority
Problems:
Cheque Signing Stamp
Recommendations
These are not recommended:
Too hard to safeguard!

25. Other Bank Account Issues
Problems:
Debit Card with full banking privileges
Recommendations
These are not recommended:
Too hard to safeguard!
Protection is important for organization AND for cash handlers –
Cash collected is precious

26. Handling of Cash Risk of misappropriation of cash Recommendations
Problem:
Risk of misappropriation of cash
Recommendations
Minimize cash transactions (credit cards, debit, online)
Have multiple individuals involved in counting and approving cash transactions
Multiple sign offs of cash counting

27. Payroll Authorization
Problems:
Only one person involved in payroll transactions
Creating false employees or inappropriate payments
Errors in payroll processing
Recommendations
Signed approval of payroll reports by senior management or Board member
Review of payroll amounts and bank statement withdrawals
Use of standard forms or online approvals

28. Payroll Authorization
Problems:
Only one person involved in payroll transactions
Creating false employees or inappropriate payments
Errors in payroll processing
Recommendations
If staff are on salary, then a payment schedule could be set for January 1 of each year
Timesheets recommended

29. Payroll Authorization
Problems:
Only one person involved in payroll transactions
Creating false employees or inappropriate payments
Errors in payroll processing
Recommendations
If changes are made to pay – should be noted in Board minutes and budget effect noted as well
Could be done “in camera”

30. Petty Cash
Problems:
Lack of a clear process – expense tracking not done properly, possible misappropriation of cash
Recommendations
Use an approved reporting format
Regular review (by Board or other employee) before funds are replenished

31. Use of Credit Cards by Federations
Problems:
Lack of supporting documentation – Personal Expenses
Recommendations
Review who is authorized for cards
Individual receipts reviewed by senior management or board members (not just the statement)
Board of Director review (for small entities)

32. Use of Credit Cards owned by Federations
Problems:
Credit card processing at fundraising events (for incoming revenues)
Recommendations
Process payments at time of event
Consider having local directors incur then claim back their own costs – many corporations and not for profits are going to this model (i.e. no corporately owned cards)

33. Review and Approval of Expense Reports
Problems:
Errors in expense reports – mileage or meal allowances
Personal expenses claimed in reports
Recommendations
Supporting information must be provided
Approval by senior management or Board
Use of standard forms or online approvals

34. Use of Online Payments Unauthorized or fraudulent purchases
Problems:
Unauthorized or fraudulent purchases
Payments can be overlooked
Recommendations
Control access to online payments and develop organization policies
Consider online banking approval process – dual approvals should be required
Review of bank reconciliations, bank statements and monthly online reports by someone else

35. Financial Reporting to Board of Directors
Problems:
Board unable to make informed decisions using up to date information
Recommendations
Full financial statements should be reviewed in detail by Board at least quarterly

36. Financial Reporting to Board of Directors
Problems:
Board unable to make informed decisions using up to date information
Recommendations
Full financial statements should be reviewed in detail by Board at least quarterly
If not feasible (Board) – consider Finance Committee or Executive
It’s good to have a Treasurer appointed – helps staff and Board

37. Financial Reporting to Board of Directors
Problems:
Board unable to make informed decisions using up to date information
Recommendations
Full financial statements should be reviewed in detail by Board at least quarterly
At a minimum – Balance Sheet and Income statement and Bank reconciliation
Even better – add “budget to actual” comparison

38. Regular Financial Reporting to Board of Directors
Problems:
Board unable to make informed decisions using up to date information
Recommendations
For very small Federations, this may be difficult. Consider options such as:
Hiring a part time bookkeeper to help – can be done inexpensively
Training a volunteer to be able to execute at a basic reporting level

39. Budget Process
Problems:
Lack of a clear budget preparation and approval process can lead to difficulty controlling expenses
Recommendations
Depending on size of organization, process may be different
Finance or Executive Committee to prepare, Board to approve
Use for ongoing monitoring
Budgets are a guide
A budget is meant to be a guide. Ok to run a deficit if have reserve funds.

40. Reserve Funds How much is reasonable? Recommendations
Problems:
How much is reasonable?
Recommendations
6 – 12 months of operating expenses is a guide
If more – should have a plan/purpose
Ok to use prior reserves to “balance” budget – “draw down from reserve”
CRA can ask if they think you have too much!

41. Transparency What information should be accessible to members?
Problems:
What information should be accessible to members?
Recommendations
Members have a right to know how you are spending their money
Also have a right to know the financial position of the Federation – bank account balances, reserves, income and expenses
Ok to use prior reserves to “balance” budget – “draw down from reserve”

42. Annual Financial Reporting
Problems:
Need to report to members at least annually
Recommendations
Consider having a Public Accountant prepare formal financial statements – different levels of scrutiny available

43. Annual Financial Reporting
Problems:
Need to report to members at least annually
Recommendations
Audit
Review
Notice to Reader
Explain assurance provided and costs

44. Annual Financial Reporting
Problems:
Need to report to members at least annually
Recommendations
Under proposed Ontario rules for corporations (which apply to Not for Profits as well) larger Federations may well require a Review engagement report or even an Audit
New rules will not apply to Federations who are not incorporated

45. Questions?