how to conduct a quarterly audit webinar october 24 th 2013 national internal audit committee
TRANSCRIPT
How to Conduct a Quarterly Audit
WebinarOctober 24th 2013
National Internal Audit Committee
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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
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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
Why Perform A Quarterly Audit?
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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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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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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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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
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Selection of Audit Committee
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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
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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.
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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.
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Audit Scope
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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 - September 2nd week in October October - December 2nd week in January January - March 2nd week in April April - June 2nd week in July
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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.
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Key Audit Filing Report Dates
QUARTERLY REPORTS
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.
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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?
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AUDIT SCOPE, PROCEDURES & TESTING
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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?
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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).
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Testing Receipts
Documents needed:
Financial Secretary’s Receipts Log
Validated Deposit Slips (receipt from the bank teller)
Receipt Books
Bank Statements
Chapter Financial Reports
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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)
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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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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.
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Validating Receipts
Member Dues Verification
100% of Dues must be reviewed.
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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.
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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
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Voucher
Voucher No. Date:
Check No.
Pay To:
Purpose:
Amount: $
Budget Charged:
Signatures:
Committee Chair Treasurer
President
ABC ChapterDelta Sigma Theta Sorority, Inc.
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Validating Disbursements
* This is the “Disbursements” tab from the IAR-1 form.
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 $(275.50)
Voucher Exists
Dual Signatures Separation DocumentationDate
11/1/10
11/11/10
12/12/10
12/20/10
1/19/11
1/26/11
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Validating Non-Check Disbursements
Verify all non-check disbursements:
Examples -
Wire Transfers
Counter Debits
Cashier’s Checks
On-line Vendor Payments
Bank Fees
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Verify Non-Check Disbursements
Date AmountMonth on
Finance ReportVoucher
exists Comments
9/10/10 875.00$ 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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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
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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 ReconciliationBank 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$ -$
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Delivery Technique
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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
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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
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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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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
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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
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Questions?