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Internal Controls in your Community Organisation

Recently we have seen an increasing trend where ineffective internal controls have contributed to fraudulent activities in local community organisations. Sadly this has been brought on by tough economic times making community organisations tempting targets for potential fraudulent activity. There are numerous examples of recent cases in Tasmania where these types of activities have occurred and unfortunately it is happening now in small or large degrees in many organisations.

What can be done to address this risk?

The key to addressing this risk rests with the organisation’s governance and in particular the internal controls processes in place.

At a board or committee level the following questions should be considered:

  • Are there adequate internal controls in place?
  • Are the internal controls documented?
  • Are the internal controls reviewed to ensure they are working effectively?

To assist with mitigating potential fraud risk, we have provided the top factors that a board, or committee members of a community organisation, should consider in reviewing their internal control and governance processes:

  • Don’t be afraid to ask questions

Financial and risk management is a “whole of board” responsibility. It is not just the responsibility of the finance director or treasurer to monitor the financial risk of the organisation. Each member of the board needs to be aware of the financial status of the organisation.

  • Review the performance of the organisation at each meeting

How is the organisation tracking against the budgeted figure? Is the organisation going as well as you expected? If not, why not?

  • Review actual bank statements each meeting

Request physical bank and term deposit statements are brought to each meeting for review. This confirms the cash actually held by the organisation.

  • Ensure “two to sign” on all cheques and bank transfers

This provides a good segregation of duties, ensuring dual approval of bank transfers and payments made from the bank account. We often see situations where one committee member signs blank cheques and leaves them with the Treasurer. Don’t!

  • Investigate electronic banking

Electronic Banking is more secure than traditional banking methods, as it also puts strict controls in place such as passwords and tokens, and allows for multiple authorisations. It also allows multiple committee members to keep an eye on bank balances and transactions in real time.

  • Ensure all expenses are approved before payment

Are major expenses approved by the board or committee before they are incurred and subsequently paid? What processes are in place to ensure all legitimate expenses are paid?

  • Ensure appropriate segregation of duties are in place

Is the appropriate segregation of duties in place to ensure the same person is not ordering goods, taking delivery and paying the invoice? It is essential to ensure no single person is performing related roles without some oversight or review. This is particularly relevant in dealing with cash and inventory.

  • Ensure minutes of meetings are recorded and maintained

It is important to record decisions and outcomes made in prior meetings. These minutes must be approved at subsequent meetings and be available to all board members when required.

  • Consider cloud accounting

Cloud Accounting has the ability to improve the internal control process through the accessibility of information. Information can be accessed at any time by accounting staff, board and committee members, accountants and auditors.

While not an exhaustive list, this is a good starting point to addressing the governance and internal control processes in your community organisation. Through implementing these points, the risk of any potential fraud within your community organisation can be greatly reduced.

Ruddicks has extensive experience in advising and auditing community organisations. Should you wish to discuss any of these points further, or risk and governance generally, please contact Lyndal Kimpton (Director) or Daniel Newton (Manager) at Ruddicks.

DISCLAIMER: The contents of this publication are general in nature and we accept no responsibility for persons acting on information contained herein. The content of this article does not constitute specific advice and readers are encouraged to consult a Ruddicks adviser on any matters of interest. © Ruddicks 2014

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