how to complete an audit quarterly internal audit report (iar-1) annual internal audit report...
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How to Complete an Audit
Quarterly Internal Audit Report (IAR-1)
Annual Internal Audit Report (IAR-1)
2014 Regional Conference CycleNational Internal Audit
Committee Training
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Chair
Myrna Phillips, CPA, MBA PMP
Alumnae Members
Pamela Hill, MAcc, MPA
Courtney Smith, CPA, CIA
Collegiate Member
Ivyanne Kenya London
Staff Liaisons
Gwendolyn Dailey
Crystal Mitchell
Terry Jones
National Internal Audit Committee
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Agenda• Purpose of Internal Audit• Constitutional Requirements• Code of Conduct Penalties• Acceptance of Responsibility Form• Purpose of the Internal Audit Committee• Internal Audit Communication• Planning the Internal Audit• Chapter Annual Audit Requirements• Audit Sample, Procedures & Testing• Audit Communication• IAR-1 Quarterly and Annual Form Input• Questions?
Why Perform A Quarterly Audit?
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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
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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:
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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.
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Constitutional Requirements
Audit of Chapter AccountsConstitution and By-Laws
Article X; Section 12.B
The books of a chapter shall be audited by a certified public accountant or an audit committee within 30 days of the close of the fiscal year. A copy shall be submitted to National Headquarters by August 31.
NOTE: Failure to submit the Internal Audit Report (IAR-1) and/ or a copy of the external audit to National Headquarters by August 31st is a violation of the Constitution and By-Laws and may be subject to sanctions and fines as stated in Section 5 C of the Code of Conduct.
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Code of Conduct Penalties
Failure to submit Annual Audit Report (IAR-1 Form):
By the required deadline (August 31st) Fine $200
30-90 days after the required deadline Fine $300
More than 90 after the required deadline Suspension for 6 Months or Fine
$500
Failure to submit the Internal Audit Report(IAR-1) and/ or a copy of the external audit to National Headquarters by August 31st is a violation of the Constitution and Bylaws and may be subject to sanctions and fines as stated in Section 5 C of the Code of Conduct.
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Acceptance of Responsibility Form
Purpose: To ensure Chair, Internal Audit Committee clearly understands, acknowledges, and accepts her responsibilities
– Conduct quarterly audits and the annual audit according to the due dates established by the National Internal Audit Committee
– File the IAR-1’s and the Annual IAR-1 in the Red Zone according to the due dates established by the National Internal Audit Committee
– Discuss the draft recommendations and findings on a quarterly basis with the Fiscal officers
– Report the findings and recommendations of the audits to the Executive Board and then to the chapter on a quarterly basis
Due: August 31st of each fiscal year
New Requirement for Chapter Internal Audit Chairs
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Acceptance of Responsibility Form
• National Website• Print and complete the form• Make a copy for the chapters records• Mail the original form to:
Delta Sigma Theta
Attention: Director of Finance
1707 New Hampshire Avenue, NW
Washington, DC 20009
Purpose of the Internal Audit
Committee
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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
Selection of the
Internal Audit Committee
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Who should be on the Internal 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
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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.
Internal Audit Communication
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Every successful audit is based on:
Internal Audit Communication
Sound planning
An atmosphere of constructive involvement
Effective communication
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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.
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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.
Planning the Internal Audit
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Planning the Internal AuditKey Audit Reporting Dates
ANNUAL REPORTS
Report RED ZONE Due Date• Annual Internal Audit Report (IAR-1) August 31st
• External Review / External Audit August 31st
QUARTERLY REPORTSReport RED ZONE Due Date
• Quarter 1 (July 1 to September 30) December 1st• Quarter 2 (October 1 to December 31) March 1st• Quarter 3 (January 1 to March 31) June 1st• Quarter 4 (April 1 to June 30) August 1st
All reports must be filed using the on-line system in the Red Zone.
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Planning the Internal Audit
The chapter’s financial records shall be audited quarterly, based on the sorority’s fiscal year (July 1 – June 30).
The audit will begin two weeks after the end of the quarter.
The schedule for the fiscal year audits is as follows:
Scheduling the Quarterly Audits
Transaction Period
Chapter Audit Committee Begins Audit Report to Chapter by
File in the Red Zone
Q1 July 1 - September 30 2nd week in October 2nd week in November Dec. 1Q2 October 1 - December 31 2nd week in January 2nd week in February Mar. 1Q3 January 1 - March 31 2nd week in April 2nd week in May Jun. 1Q4 April 1 - June 30 2nd week in July Sep. Chapter meeting Aug. 1Annual IAR-1 N/A Sep. Chapter meeting Aug. 31External Audit/External Review N/A Sep. Chapter meeting Aug. 31
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Audit Requirement
Gross Receipts Requirements Performed By
Level 1: $0 - $50,000 Internal Audit Report (IAR-1) Internal Audit Committee
Review of Financial Statements Licensed CPA
Internal Audit Report (IAR-1) Internal Audit Committee
Audited Financial Statements Licensed CPA
Internal Audit Report (IAR-1) Internal Audit Committee
Level 2: $50,001 - $100,000
Level 3: more than $100,000
Audit Levels
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AUDIT SAMPLE, PROCEDURES & TESTING
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Sample Selection
When examining less than 100% of the transactions, a sample needs to be selected. It is preferable to use a statistical sampling method.
Statistical Sampling –
1. Random sampling
2. Systematic sampling
Nonstatistical Sampling –
1. Haphazard sampling
2. Judgmental sampling
Statistical Sampling vs. Nonstatistical Sampling
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Receipts
Receipts represent the total funds collected from dues, conferences, fundraising, etc.
Objectives
• Ensure that all cash/check receipts are deposited timely (within 2 business days of receipt).
• Confirm that the receipts are recorded accurately
.NOTE: Receipts do not include the movement/transfer of monies between chapter accounts (example transfers from Operating to Fundraising).
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Validating Receipts
1. Compare the Financial Secretary’s Logs to the
Bank Statement Deposits2. Compare the Financial Secretary’s Logs to the
Treasurer’s Reports 3. Compare Receipt Books to the Bank Deposit
slips4. Verify Member Dues to the Member Log
5. NOTE: For the Annual IAR-1, compare the total gross receipts with the Annual Financial Report (Form 990). If these amounts are
different, the Annual IAR-1 form WILL NOT BE ACCEPTED.
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Validating Receipts
Apr May Jun Jul Aug Sep Oct Nov Total4,500.00$ 6,017.18$ 3,951.06$ 390.00$ 860.00$ 1,384.06$ 881.09$ 456.09$ 18,439.48$
Cumulative 4,500.00$ 10,517.18$ 14,468.24$ 14,858.24$ 15,718.24$ 17,102.30$ 17,983.39$ 18,439.48$
Apr May Jun Jul Aug Sep Oct Nov Total4,500.00$ 5,702.18$ 3,951.06$ 705.00$ 860.00$ 1,384.06$ 881.09$ 456.09$ 18,439.48$
Cumulative 4,500.00$ 10,202.18$ 14,153.24$ 14,858.24$ 15,718.24$ 17,102.30$ 17,983.39$ 18,439.48$
Apr May Jun Jul Aug Sep Oct Nov Total-$ 315.00$ -$ (315.00)$ -$ -$ -$ -$ -$
Cumulative -$ 315.00$ 315.00$ -$ -$ -$ -$ -$
Comparison of Financial Secretary's Log to Deposits
Receipt Log (Financial Secretary's Log)
Deposits from Bank Statement
Difference
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Validating Receipts
Apr May Jun Jul Aug Sep Oct Nov Total4,500.00$ 6,017.18$ 3,951.06$ 390.00$ 860.00$ 1,384.06$ 881.09$ 456.09$ 18,439.48$
Cumulative 4,500.00$ 10,517.18$ 14,468.24$ 14,858.24$ 15,718.24$ 17,102.30$ 17,983.39$ 18,439.48$
Apr May Jun Jul Aug Sep Oct Nov Total-$ 4,500.00$ 6,437.05$ -$ -$ 1,485.00$ 1,284.06$ 456.09$ 14,162.20$
Cumulative -$ 4,500.00$ 10,937.05$ 10,937.05$ 10,937.05$ 12,422.05$ 13,706.11$ 14,162.20$
Apr May Jun Jul Aug Sep Oct Nov Total4,500.00$ 1,517.18$ (2,485.99)$ 390.00$ 860.00$ (100.94)$ (402.97)$ -$ 4,277.28$
Cumulative 4,500.00$ 6,017.18$ 3,531.19$ 3,921.19$ 4,781.19$ 4,680.25$ 4,277.28$ 4,277.28$
Treasurer's Report
Difference
Comparison of Financial Secretary's Log to Treasurer's Reports
Receipt Log (Financial Secretary's Log)
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Disbursements
Disbursements represent the total checks and non check payments (wire transfers, etc.) issued.
Objectives
Ensure that all disbursements are recorded timely
Disbursements are properly supported and approved
Disbursements are recorded accurately
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Member Dues Verification
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Disbursements Verification
Obtain the Cash Disbursements Register for the audit period to verify gross expenses:
Verify that all check numbers are accounted for Ensure that all checks issued are recorded Obtain an explanation for checks issued out of
sequence Compare the total expenditures recorded Compare the total calculated expenses with the
Annual Finance Report (Form 990) cash disbursements and explain any differences
Verify unused check stock
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Disbursements VerificationVerify Disbursements• Select 25% of the total checks issued (but not more than 15 per quarter) and
perform the following tests:
– Examine supporting documentation for the disbursement
– Compare the completed voucher with the budget line item amount
– Verify that the disbursement was approved
– Compare the details with the Disbursements register.
– Compare the disbursement to the check copies or images
– Verify that the check payee is not the check signer or the approver
– Verify documentation and authorization for disbursements made using
merchant accounts or secure online payment systems such as PayPal
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Validating Disbursements
Check#Check Made
Payable To:Check Amount Comments
Yes No Yes No Yes No Yes No
1 2184 VOIDED $ -
2 2203 Karen Soror $ (29.19)
3 2276 Delta Sigma Theta $(160.00)
4 2309 Teresa Soror $(282.23)
5 2424 Cash $ (30.00) Payable to cash
6 2481 Hotel California $(275.50)
Voucher Exists
Dual Signatures Separation DocumentationDate
NOTE: Select a statistical sample of 25% of disbursements but no more than 15 per quarter.
* This is the “Disbursements” tab from the IAR-1 form.
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Disbursements Verification
Other Disbursements –
Non-check disbursements consist of wire transfers, EFTs, cashier’s checks and online payment systems such as PayPal. • Verify that documentation exists to support 100% of
non-check disbursements.• Ensure that proper approvals exist to support the
issuance of the non-check disbursements.
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Verify Non-Check Disbursements
Date AmountMonth on
Finance ReportVoucher
exists Comments
9/10/10 875.00$ September Yes Wire Transfer
11/23/10 66.63$ November No Check Re-Order
12/13/10 375.00$ January Yes Vendor Payment
1/05/11 800.00$ January Yes Wire Transfer
2/08/11 770.00$ February Yes Wire Transfer
3/15/11 4,400.00$ March Yes Wire Transfer
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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
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Verify Voided Checks
Check Number
Check Date
Check Amt Payee
Void recorded in Check Register
Voided check
added back to balance
Original voided
check filed
Voided check appears on
bank statement
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Bank Balances
The bank balances represent the amount of cash available in the chapter’s bank accounts.
Objectives
Ensure the chapter bank balances are accurate Ensure the chapter discloses all bank accounts
and balances Ensure the bank account reconciliations are
performed timely
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Bank Reconciliation
Bank Statement as of: June 30, 2010
Bank Statement Balance
Checkbook Balance Difference Comments
Balance 7,795.42$ 6,273.44$ 1,521.98$ -Less outstanding checks
-Check number 234 (128.34)$ (128.34)$ -Check number 345 (124.00)$ (124.00)$ -Check number 350 (376.87)$ (376.87)$ -Check number 363 (1,000.00)$ (1,000.00)$ -Check number 364 (78.43)$ (78.43)$ -Check number 365 (600.00)$ (600.00)$ -Check number 366 (29.34)$ (29.34)$
-Less bank fees (40.00)$ 40.00$ Checks-Less other charges (25.00)$ 25.00$ Stop Payment fee-Plus deposits in transit 750.00$ 750.00$
Balance 6,208.44$ 6,208.44$ -$
Audit Communication
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Summary Report
Audit Communication
Summary Audit reports have three major objectives: 1. Inform2. Persuade 3. Obtain results
The Summary Audit report 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
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Detailed Audit Report
Audit Communication
The Detailed Audit report contains the comprehensive results of the audit testing which supports the information in the Summary Audit report. Ensure that the report: Is clear, concise, and free of unnecessary detail Is consistent in any conclusions expressed Summarizes operating policies and procedures referenced Is easily understood, presented logically, and is to the point Is constructive and balanced throughout Use graphics or attachments, as appropriate, which help to
convey points or provide additional information
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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.)
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IAR-1 Quarterly Form Input
• The IAR-1 Form should be input by the chapter’s current Internal Audit Chair. When all input is complete the current Internal Audit Chair will electronically sign the form.
• The current chapter president reviews the data input by the current Internal Audit Chair and then electronically signs the form.
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IAR-1 Quarterly Form Input
- Go to the Members Area
- Click the The Red Zone
- radial button
- Click Submit
Log into The Red Zone – www.DeltaSigmaTheta.org
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IAR-1 Quarterly Form Input
- Go to the Members Area
- Click the The Red Zone radial button
- Click Submit
Log into The Red Zone – www.DeltaSigmaTheta.org
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IAR-1 Quarterly Form Input
Log into the Red Zone
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IAR-1 Quarterly Form Input
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IAR-1 Quarterly Form InputClick on Audit Reports
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IAR-1 Quarterly Form Input
Use your Sisters Portal logon and password here to enter the Financial Forms area
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IAR-1 Quarterly Form Input
Select Quarterly Forms from the menu on the left side of the screen
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IAR-1 Quarterly Form Input
Select Start a New Report from the menu on the right side of the screen
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IAR-1 Quarterly Form Input
Enter your Chapter Tax ID if not pre-populated
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IAR-1 Quarterly Form Input
Enter the indicated information from the Excel spreadsheet which has been
completed in advance
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IAR-1 Quarterly Form Input
Review the Instructions
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IAR-1 Quarterly Form Input
Chapter Information will be Pre-populated.
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IAR-1 Quarterly Form Input
Enter Chapter Bank Account information.
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IAR-1 Quarterly Form Input
Enter chapter’s expenses and gross.
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IAR-1 Quarterly Form Input
.
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IAR-1 Quarterly Form Input
.
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IAR-1 Quarterly Form Input
.
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IAR-1 Quarterly Form Input
.
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IAR-1 Quarterly Form Input
.
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IAR-1 Quarterly Form Input
Enter the Dues Exceptions ONLY
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IAR-1 Quarterly Form Input
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IAR-1 Quarterly Form Input
Select an Overall Finding
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Annual IAR-1 InputIf the Internal Audit Committee is in transition:
• The outgoing IA Chair and committee have the responsibility of completing the 4th quarter audit and ensuring the Annual IAR-1 form and external audit (if required) is completed and provided to the incoming IA Chair. (Note: the IA chair and committee will also sign the signature page as members)
• The current (incoming) IA Chair will input the data into the Annual IAR-1 form in the online system and electronically sign the form.
• The current (incoming) IA Chair is a participant in the activities related to the preparation of the Annual IAR-1 form and the external audit. She shall be attentive and open to actively observing during this transition period.
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IAR-1 Annual Form Input
Use your Sisters Portal logon and password here to enter the Financial
Forms area
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IAR-1 Annual Form Input
Select Annual IAR-1 Forms from the menu on the left side of the screen
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IAR-1 Annual Form Input
Start a New Report
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IAR-1 Annual Form InputChapter Information will be pre-populated.
Select Applicable Fiscal Year.
Enter Date Internal Audit Completed.
Enter Gross Receipts for fiscal period.
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IAR-1 Annual Form Input
Review the Instructions
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IAR-1 Annual Form Input
Review the Instructions
Chapter Information will be pre-populated.
Audit Date and Gross receipts will be pre-populated from entry on previous screen.
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IAR-1 Annual Form Input
Reviews Section
Answer each question under Internal Control Procedures
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IAR-1 Annual Form Input
Internal Control Procedures –
cont’d
Answer each question under Internal Control
Procedures
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IAR-1 Annual Form Input
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IAR-1 Form Input
Bank Accounts
Answer each
question
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IAR-1 Annual Form Input
Bank Accounts –
Cont’d
Be sure to include all
accounts and Check
Signers.
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IAR-1 Annual Form Input
Bank Accounts –
Cont’d
Be sure to include all
accounts and Check
Signers.
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IAR-1 Annual Form Input
Bank Accounts –
Cont’d
Verify that Bonded
Member info is correct
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IAR-1 Annual Form Input
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IAR-1 Annual Form Input
Select a statistical sample of 50% of total checks written but no more than 50.
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IAR-1 Annual Form Input
Enter the Member Dues EXCEPTIONS
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IAR-1 Annual Form Input
Select an Overall Audit finding, add Audit Committee members and upload External Auditor
information if applicable.
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IAR-1 Annual Form Input
Upload the Audit Form, Signature page and any CPA reports.
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Reminders
• Uploaded documents must be in PDF or JPEG format• Form 990 must be submitted and accepted online prior to submitting
the Annual IAR-1 form• Gross receipts on Line 7 of the Form 990 must match the gross
receipts amount on the Annual IAR-1– The account balances on Line 15 of the Form 990 must match the account balances
of the IAR-1 entered as Total Revenue and Total Expenses
• Complete Excel Audit Template & Worksheets before input to the Quarterly IAR-1
– Cash receipts worksheet– Disbursements worksheet– Member dues worksheet
– NOTE: All worksheets and schedules of the IAR-1 must be completed.
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Reminders• IAR-1 must be signed by both the CURRENT chapter Internal Audit
Chair and the CURRENT chapter President to be accepted.
• Collegiate Chapters only- If the chapter has 3 members or less and does not have an Internal Audit Chair, the CURRENT chapter President must sign the IAR-1 and send an email/ or call the finance department at Headquarters to have the IAR-1 reviewed.
• Collegiate Chapter Advisors – CANNOT sign the IAR-1 nor can they prepare the IAR-1. If the chapter has three members or less and /or does not have chapter members with the expertise to complete an audit, the collegiate chapter must secure the services of an outside auditor to prepare the IAR-1 form (i.e. an alumnae chapter fiscal officer or and external auditor) .
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Delta Audit Website
The following forms and documents are available on the Delta Website:
• DST Quarterly Audit Form
• How to Conduct an Audit Webinar
• Internal Audit committee Webinar Q and A
• 2014 Internal Audit Manual
• 2013 Webinar Annual Online Internal Audit Reporting Form IAR-1 - (contains audio)
• Quarterly IAR-1 Entry of Data Screenshots
• ANNUAL IAR-1 Entry of Data Screenshots
Resources
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Chair
Myrna Phillips, CPA, MBA PMP
Alumnae Members
Pamela Hill, MAcc, MPA
Courtney Smith, CPA, CIA
Collegiate Member
Ivyanne Kenya London
Staff Liaisons
Gwendolyn Dailey
Crystal Mitchell
Terry Jones
National Internal Audit Committee
92
QUESTIONS