Spring clean your accounts
It’s that time of year when many not for profits will have completed their audit and received the auditor’s letter detailing adjustments to the accounts and risks they’ve identified. Often, they will recommend process changes to improve controls and generally keep the accounts in good shape.
Time to implement those recommendations
Now that June year-end organisations might be looking forward to a bit of a quiet time once AGMs are held and funding acquittals submitted, it’s a great time to implement those recommendations.
You’ll certainly be in a better position next audit if you implement them now rather than scrambling in June next year.
And if you have a December year-end, a bit of a scramble before you close the year might help audit roll more smoothly.
A risk management approach
Auditors take a risk management approach to their work.
Obviously, they can’t review all of your transactions in detail … so they need to feel confident that your finance processes achieve your stated policies and provide a high level of control.
If they find a level of non-compliance with policy, that’s when they delve deeper into sampling transactions.
Here are some of the items we found auditors – and Boards – were keen on this year.
There are a lot of common purchases for which credit card is the only option. The supplier doesn’t provide an “on invoice” facility – think of event registrations, airfares and accommodation and, of course, online purchases.
These make a corporate credit or debit card almost a necessity and certainly an efficient tool to have in your pocket.
A corporate credit or debit card is also a great alternative to the old petty cash tin, removing the risk of having cash lying around.
A key benefit of having a corporate credit card is the ability to pay for a transaction on-the-spot, without explicit authority or pre-approval per transaction.
As the number of cardholders increases, we’ve noticed auditors and savvy Boards are keen to know that someone is overseeing that expenditure.
We’ve seen two management points on this topic:
- There should be a written policy, or at least a part of the overarching finance policy, that deals with credit card usage. It should include detail on what may and may not be purchased via credit card, build in checks to confirm active direct debits are still valid, a clear purchasing process and processes for review of credit card expenditure.
- The review process should generally be done by the manager of the cardholder (a Board member in the case of the CEO or manager). While you still want to retain the on-demand convenience of the credit card for purchases, oversight can be achieved by providing a report on credit expenses from the accounting system or the credit card statements. The statement is easy as it exists as a document already, but a report from the accounting system can provide additional detail such as account and cost centre coding and – depending on the reporting ability of your accounting software – should be fairly easy to produce.
Electronic banking saves a lot of time and paper, but the convenience and efficiency shouldn’t be at the expense of security and probity.
It is best practice to have two signatories authorise transactions at the bank, and they should be independent of the person preparing the payment batch.
That segregation of duties can be harder to achieve in a small charity or association.
But there are some measures you can put in place that are efficient for a smaller organisation while maintaining an appropriate level of control over the approvals process.
For example, have invoices approved for payment by someone with appropriate delegated authority before they go to the bookkeeper. A small organisation might use Board members as bank signatories, in which case it is good practice to provide an electronic copy of the invoices that are included in the bank batch they are authorising.
What if it isn’t possible to have two signatories? We know that Board and Committee members have other things on their agendas and may not be routinely available during banking hours to act as signatories.
A client of ours with only a couple of permanent staff and a busy Board moved away from having a two-to-sign policy in favour of the CEO being able to authorise bank payments within his delegated authority limits. This had a ceiling on value per individual transaction and a stipulation that the expenditure was within budget. Outside of those limits, a Board member would be contacted to sign off at the bank.
Did you read the first sentence and wonder, “What is this auditor’s letter?”
Often called a management letter or audit closure or completion report, the letter sets out the auditor’s findings in more detail than in the official financial statements … along with recommendations for improvement. If you’re not currently receiving one from your auditor, you might like to ask for one!
Need advice to prepare for your next audit? Give us a call, we’re here to help.