1. Internal Controls For Small Governments
Panel Discussion
NCGFOA Summer Conference
Moderated By:

2. Meet Today’s Panelists
Moderator
Eddie Burke, CPA
Assurance Partner
Cherry Bekaert LLP
Panelists
Charlene Allen
Assistant Director of Finance
Town of Kill Devil Hills
Deanna Barefoot
Financial Services Supervisor Harnett County
Scott Edwards
Finance Director
City of Raeford
Kim Kenney
Finance Officer
Town of Knightdale
Tina Strickland
Financial Services Supervisor
Harnett County

3. Today’s Learning Objectives
Why do we have internal controls
Importance of segregation of duties
Basic internal controls
System Implementation

4. Internal Control Objectives
Internal Control Should Have The Following Objectives:
Efficient conduct of business
Safeguarding assets
Preventing and detecting fraud and other unlawful acts
Completeness and accuracy of financial records
Timely preparation of financial statements

5. Segregation of Duties

6. Basic Internal Control Principle
AICPA
Segregation of Duties (SOD) is a basic building block of sustainable risk management and internal controls
Definition
Key internal control intended to minimize the occurrence of errors or fraud by ensuring that no employee has the ability to both perpetrate and conceal errors or fraud in the normal course of their duties.

7. Complicated to Design and Implement Especially for Small Organizations
Segregation of Duties Has Cost Associated
Limited Resources
Must Be a Focal Point For All Staff
Evaluation
Documentation
Communication
Alternative Measurement Method
This Statement includes an option for the use of a specified alternative measurement method
in place of an actuarial valuation for purposes of determining the total OPEB liability for
benefits provided through an OPEB plan in which fewer than 100 employees (active and
inactive) are provided with OPEB through the plan. The alternative measurement method
is an approach that includes the same broad measurement steps as an actuarial valuation
(projecting benefit payments, discounting projected benefit payments to a present value, and
attributing the present value of projected benefit payments to periods using an actuarial cost
method). However, it permits simplification of certain assumptions.

8. Responsibility Management (management needs to be defined)
Department Heads
Supervisors
Staff
Auditors

9. Primary Duties That Should Be Segregated
Some Examples of Incompatible Duties
Authorizing a Transaction, Receiving and Maintaining Custody of the Asset That Resulted From the Transaction
Receiving Funds (Checks or Cash) and Approving Write-off of Receivables
Reconciling Bank Statements/Accounts and Booking Entries to General Ledger
Depositing Cash and Reconciling Bank Statements
Approving Time Cards and Having Custody of Pay Checks
Authorization or Approval
Custody of Assets
Recording Transactions
Reconciliation / Control Activity

10. Thinking outside the box for small governments
When duties cannot be sufficiently segregated due to the small size of a unit, it is important that mitigating controls, such as a detailed supervisory review of the activities, be put in place to reduce risks.
Looking to other departments that may have personnel capable of performing or reviewing activities.
Asking board members to become involved
Looking to business leaders outside the organization or hiring outside resources.

11. Basic Controls

12. General controls receipts, vendor payments and payroll
Monitor bank accounts on a regular basis
Require reconciliations of accounts on a regular basis– cash, receivables, and payables
Cross training and rotation of duties
Have a vacation policy and enforce it
Use of positive pay for checks and ach controls
Undistributed checks should be stored locked up

13. Receipts
Proper receipting with use of receipt books if not using a register or cashiering system
Checks and balances over deposit preparation
Clarity on process for getting deposits to the bank in accordance with daily deposit statute

14. Vendor Payments Vendor set up by someone other than accounts payable
Payment of original invoices not statements only
All invoices reviewed and pre-audited
Dual signatures or approvals on checks & wires – at least one original
Sequentially numbered purchase orders and checks
Establish a dollar limit for purchases requiring a purchase order and require multiple approval levels
Establish a dollar limit for contracts requiring council approval (including change orders)

15. Payroll
Payroll changes processed by HR but implemented by payroll/Finance
Pre-audit of personnel action forms with changes to salary
Employees receiving checks should be required to sign for them at least annually
Verification of hours worked and approval of overtime hours
Verification of manual calculations
Match payroll register to supporting documents
Written requests for changes to marital status, withholdings, and deductions
All banking changes made in person – not mail, phone, or (example of what happened when we didn’t)
Pre-note of ACH for new employees and changes to existing employees, first pay after change is by check

16. Purchase Cards and Pre-Audit

17. General Workflow For Purchase Cards
Approval process
purchase orders
transaction approval
users
supervisor
purchasing agent
finance officer
Process for Pre-audits

18. Implementation of Internal Controls

19. Implementation of New Systems
Definition of Workflow
Paper vs Electronic Workflow
Inclusion of all parties involved
Accountability
Avoid Overload

20. Timely Preparation of Financial Statements
Skill Level of Employees
Ability to Write Your Own Financial Statements

21. Q&A Panel Discussion

22. Q&A Moderator Panelists Eddie Burke, CPA Assurance Partner
Cherry Bekaert LLP
Panelists
Charlene Allen
Assistant Director of Finance
Town of Kill Devil Hills
Deanna Barefoot
Financial Services Supervisor Harnett County
Scott Edwards
Finance Director
City of Raeford
Kim Kenney
Finance Officer
Town of Knightdale
Tina Strickland
Financial Services Supervisor
Harnett County