1. How to Conduct a Quarterly Audit Webinar October 24 th 2013 National Internal Audit Committee

2. 2 Chair Myrna Phillips, CPA, MBA PMP Alumnae Members Pamela Hill, MAcc, MPA Courtney Smith, CPA, CIA Collegiate Members DeHavelyn K. Barnes Ivyanne Kenya London Staff Liaisons Gwendolyn Dailey Crystal Mitchell National Internal Audit Committee CNIACDST@gmail.com hillpamelar@gmail.com cesmith217@gmail.com Barnesdkn@gmail.com Ivyanne_London@aol.com gkdailey@deltasigmatheta.org cmitchell@deltasigmatheta.org

3. 3  Purpose of a Quarterly Internal Audit  Purpose of the Internal Audit Committee  Selection of the Internal Audit Committee  Internal Audit Communication  Planning the Audit  Information Gathering  Audit Scope Procedures and Testing  Delivery Technique  QUESTIONS? Agenda

4. Why Perform A Quarterly Audit? 4

5. 5 Purpose of an Internal Audit  Increases accountability  Improves: - ethical and professional practices - the quality of output and supports decision-making and performance tracking  Can be used : - to examine and evaluate activities - as a service to the institution promoting effective control at a reasonable cost  Helps organizations achieve their stated objectives An Internal Audit:

6. 6 An internal audit is the mechanism by which a chapter assesses the level of compliance to chapter policies and procedures and internal controls Purpose of an Internal Audit The better the control environment, the less likely unexpected events are to adversely affect an entity's ability to execute on its strategies and achieve its objectives. Performing quarterly internal audits helps prevent:  Theft  Fraud  Embezzlement

7. 7 The misappropriation of funds is due primarily to fiscal officers not performing their duties and responsibilities Purpose of an Internal Audit All chapters should have fiscal policies and procedures in place that define its internal controls for safeguarding chapter assets. The audit assesses whether fiscal officers are performing their duties according to the written policies. The audit also helps highlight potential problems that may result in future financial losses if not corrected.

8. 8 Purpose of the Internal Audit Committee

9. 9 The committee’s purpose includes: Purpose of the Internal Audit Committee  Recommending for chapter approval an independent auditor to conduct the annual review/audit (if applicable)  Reviewing and proposing internal controls  Performing the chapter’s quarterly internal audits  Reporting audit findings and recommendations to the chapter  Submitting the IAR-1 Form for each quarter online  Submitting the Annual IAR-1 Form online by August 31st

10. 10 Selection of Audit Committee

11. 11 Who should be on the Audit Committee?  Target sorors who have financial or audit backgrounds  Sorors who know about the chapter’s finances, but who are not the current fiscal officers  A designated external person can be selected to perform the audit if the chapter’s size does not permit the establishment of an internal audit team

12. 12 Who should not be on the committee?  Current Fiscal Officers President, Treasurer, Financial Secretary, Assistant Treasurer, Assistant Financial Secretary  Members of the Budget/Finance Committee  Chapter Advisors  NOTE: While not ideal, Immediate Past Financial officers may serve as long as they do not audit or review transactions which they initiated or were privy to.

13. 13 Internal Audit Communication

14. 14 Every successful audit is based on: Internal Audit Communication  Sound planning  An atmosphere of constructive involvement  Effective communication

15. 15 The Internal Audit Committee and the Chapter Fiscal Officers should work together to complete the internal audits by: Internal Audit Communication  developing a process (how it will be done), and  agreeing to a timeframe (when it will be done) Chapters should know that the Internal Audit Committee:  has an active interest in ensuring internal controls are in place and effective and,  wants to ensure that the established policies and procedures are being followed.

16. 16 The culmination of the internal audit is the audit report. Internal Audit Communication The audit report should be designed to assist chapter leadership in measuring its own performance - particularly with respect to the reliability and soundness of established internal controls. The Internal Audit Committee should report any audit findings and recommendations to the chapter after each audit. The results of the internal audit are confidential and should only be discussed through the formal communications mechanisms set forth in the chapter’s policies and procedures.

17. 17 Audit Scope

18. 18 Planning the Audit  An agreement to the time and scope of the Internal Audit Review Schedule should be reached  The chapter’s financial records shall be reviewed quarterly, based on the sorority’s fiscal year (July 1 – June 30).  The review will be conducted two weeks after the end of the quarter.  The schedule for beginning the 2013-2014 audits can be as follows:  July - September2nd week in October  October - December 2nd week in January  January - March 2nd week in April  April - June 2nd week in July

19. 19 Sample Internal Audit Review Schedule  For Example – Records for July – September (Quarter 1) shall be:  Collected by October 14  Review October 15 thru October 28  returned to the fiscal officers no later than October 31  The audit findings shall be presented to fiscal officers the week of mid- November.  The Quarterly IAR-1 is filed with National headquarters no later than December 1.  The audit report shall be presented to the Executive Board and then to the chapter preferably no later than one month after filing the Quarterly IAR- 1 with National headquarters.

20. 20 Key Audit Filing Report Dates Q UARTERLY R EPORTS Quarter Due Date Quarter 1 (July through September)December 1st Quarter 2 (October through December)March 1st Quarter 3 (January through March)June 1st Quarter 4 (April through June)August 1st All reports should be filed using the on-line system in the Red Zone.

21. 21 Information Gathering  Fiscal Policies and Internal Control Procedures  Chapter Budget  Check Registers  Financial Reports  Receipts Register  Receipt Logs and Books  Disbursements Register  Checkbook and Stubs  Copies of Cancelled Checks  Bank Reconciliation  Validated Deposit Slips  Bank Statements  Membership Records and Transmittals  Annual Financial Report (Form 990) – if this is for the annual internal audit  Minutes (Board, Chapter) What materials do you need?

22. 22 AUDIT SCOPE, PROCEDURES & TESTING

23. 23 Sample Selection A sample is considered “good” when:  Every transaction has an equal chance of selection  The sample is random  The sample covers the entire audit period When is a Sample good?

24. 24 Receipts Receipts represent the total funds collected from dues, conferences, fundraising, etc. Objective Ensure that all cash and checks received are recorded promptly and accurately. NOTE: Receipts do not include the movement/transfer of monies between chapter accounts (example transfers from Operating to Fundraising).

25. 25 Testing Receipts Documents needed:  Financial Secretary’s Receipts Log  Validated Deposit Slips (receipt from the bank teller)  Receipt Books  Bank Statements  Chapter Financial Reports

26. 26 Validating Receipts 1.Compare the Financial Secretary’s Logs to the Bank Statement Deposits 2.Compare the Financial Secretary’s Logs to the Treasurer’s Reports 3.Compare Receipt Books to the Bank Deposit slips 4.Verify Member Dues to the Member Log 5.NOTE: For a full year audit, compare the total gross receipts with the Annual Financial Report (Form 990)

27. 27 Validating Receipts

28. 28 Validating Receipts

29. 29 Verify Receipts Note that effective with the 2010 National Convention (August 2010), the Finance Committee has updated the chapter deposit requirement. Deposits must now be made within 2 business days of receipt (instead of within 48 hours). Please reference the Finance Manual for specific guidance. * This is the “Receipts” tab from the IAR-1 form.

30. 30 Validating Receipts Member Dues Verification 100% of Dues must be reviewed.

31. 31 Disbursements Disbursements represent the total checks and non check payments (wire transfers, etc.) issued. Objective Ensure that all disbursements are approved, supported and recorded accurately.

32. 32 Validating Disbursements 1.Review the check log and checkbook for missing check numbers 2.Calculate the total disbursement amount recorded in the disbursement log. The disbursement log should include check and non-check activity. 3.Compare the total disbursements calculated in step b with the total disbursements reported on the chapter financial report 4.Verify check and non-check disbursements 5.Verify voided checks

33. 33 Voucher

34. 34 Validating Disbursements * This is the “Disbursements” tab from the IAR-1 form. 11/1/10 11/11/10 12/12/10 12/20/10 1/19/11 1/26/11

35. 35 Validating Non-Check Disbursements Verify all non-check disbursements: Examples -  Wire Transfers  Counter Debits  Cashier’s Checks  On-line Vendor Payments  Bank Fees

36. 36 Verify Non-Check Disbursements DateAmount Month on Finance Report Voucher existsComments 9/10/10875.00$ SeptemberYesWire Transfer 11/23/1066.63$ NovemberNoCheck Re-Order 12/13/10375.00$ JanuaryYesVendor Payment 1/05/11800.00$ JanuaryYesWire Transfer 2/08/11770.00$ FebruaryYesWire Transfer 3/15/114,400.00$ MarchYes Wire Transfer

37. 37 Validating Disbursements Verify voided checks  Examine the checks  Observe that the reason for voiding is documented and the check is cancelled  Verify that the voided check does not appear on the bank statement

38. 38 Verify Voided Checks

39. 39 Bank Reconciliation

40. 40 Delivery Technique

41. 41 Summary Report Draft Audit Report The summary report from the Internal Audit Committee should contain:  Heading, including chapter name, period, and type of report  A high level overview of the scope including the period under review  A summary of the findings, and  An opinion of the overall state of the records

42. 42 Detail Findings Draft Audit Report Categorize findings into sections. Provide as much detail as necessary to make findings reader-friendly. Some examples of categories are:  Financial Reports  Disbursements  Receipts  General findings (covers findings that do not fit under any other category)  Deposits  Bank Reconciliations  Members Dues and Validation

43. 43 Recommendations Draft Audit Report  List recommendations and relate back to findings  Refer to Delta reference documents as necessary (Constitution & By-Laws, Chapter Management Handbook, Finance Workshop Manual, Chapter Policies and Procedures, etc.)

44. 44  Present the summary report, including recommended courses of action, to the Executive Board  Present the final report to the chapter for informational purposes only. –The report is not voted on, but filed for review (on-site review only) Who gets the Internal Audit Report

45. 45  The audit review should be constructive; not destructive  Recommendations should help fiscal officers work smarter, not harder  Internal controls should be strengthened by the implementation of audit recommendations In Summary

46. 46 Questions?