Solution:
10 internal controls for a landscape company with 10 employees,
a large amount of supplies, and a large client base
- Use a system of checks and balances to ensure no one
person has control over all parts of a financial
transaction.
- Require purchases, payroll, and disbursements to be authorized
by a designated person.
- Separate handling (receipt and deposit) functions from record
keeping functions (recording transactions and reconciling
accounts).
- Separate purchasing functions from payables functions.
- Ensure that the same person isn’t authorized to write and sign
a check.
- When opening mail, endorse or stamp checks “For Deposit Only”
and list checks on a log before turning them over to the person
responsible for depositing receipts. Periodically reconcile the
incoming check log against deposits.
- Require supervisors to approve employees’ time sheets before
payroll is prepared.
- Require paychecks to be distributed by a person other than the
one authorizing or recording payroll transactions or preparing
payroll checks.
- If the agency is so small that you can’t separate duties,
require an independent check of work being done, for example, by a
board member.
- Require accounting department employees to take vacations.
- Reconcile agency bank accounts every month.
- Require the reconciliation to be completed by an independent
person who doesn’t have bookkeeping responsibilities or check
signing responsibilities or require supervisory review of the
reconciliation.
- Examine canceled checks to make sure vendors are recognized,
expenditures are related to agency business, signatures are by
authorized signers, and endorsements are appropriate.
- Examine bank statements and cancelled checks to make sure
checks are not issued out of sequence.
- Initial and date the bank statements or reconciliation report
to document that a review and reconciliation was performed and file
the bank statements and reconciliations.
- Restrict use of agency credit cards and verify all
charges made to credit cards or accounts to ensure they were
business-related.
- Limit the number of agency credit cards and users.
- Establish a policy that credit cards are for business use only;
prohibit use of cards for personal purposes with subsequent
reimbursement.
- Set account limits with credit card companies or vendors.
- Inform employees of appropriate use of the cards and purchases
that are not allowed.
- Require employees to submit itemized, original receipts for all
purchases.
- Examine credit card statements and corresponding receipts each
month, independently, to determine whether charges are appropriate
and related to agency business.
- Provide Board of Directors oversight of agency
operations and management.
- Monitor the agency's financial activity on a regular basis,
comparing actual to budgeted revenues and expenses.
- Require an explanation of any significant variations from
budgeted amounts.
- Periodically review the check register or general ledger to
determine whether payroll taxes are paid promptly.
- Document approval of financial procedures and policies and
major expenditures in the board meeting minutes.
- Require independent auditors to present and explain the annual
financial statements to the Board of Directors and to provide
management letters to the Board.
- Evaluate the Executive Director's performance annually against
a written job description.
- Participate in the hiring/approval to hire consultants
including the independent auditors.
- Prepare all fiscal policies and procedures in writing
and obtain Board of Directors approval. Include policies and/or
procedures for the following:
- cash disbursements
- attendance and leave
- expense and travel reimbursements
- use of agency assets
- purchasing guidelines
- petty cash
- conflicts of interest
- Ensure that agency assets such as vehicles, cell
phones, equipment, and other agency resources are used only for
official business.
- Examine expense reports, credit card charges, and telephone
bills periodically to determine whether charges are appropriate and
related to agency business.
- Maintain vehicle logs, listing the dates, times, mileage or
odometer readings, purpose of the trip, and name of the employee
using the vehicle.
- Periodically review the logs to determine whether usage is
appropriate and related to agency business.
- Maintain an equipment list and periodically complete an
equipment inventory.
- Protect petty cash funds and other cash funds.
- Limit access to petty cash funds. Keep funds in a locked box or
drawer and restrict the number of employees who have access to the
key.
- Require receipts for all petty cash disbursements with the
date, amount received, purpose or use for the funds, and name of
the employee receiving the funds listed on the receipt.
- Reconcile the petty cash fund before replenishing it.
- Limit the petty cash replenishment amount to a total that will
require replenishment at least monthly.
- Keep patient funds separate from petty cash funds.
- Protect checks against fraudulent use.
- Prohibit writing checks payable to cash.
- Deface and retain voided checks.
- Store blank checks in a locked drawer or cabinet, and limit
access to the checks.
- Require that checks are to be signed only when all required
information is entered on them and the documents to support them
(invoices, approval) are attached.
- Require two signatures on checks above a specified limit.
Require board member signature for the second signature above a
higher specified limit. (Ensure that blank checks are not
pre-signed.)
- Mark invoices “Paid” with the check number when checks are
issued.
- Enable hidden flags or audit trails on accounting
software.
- Protect cash and check collections.
- Ensure that all cash and checks received are promptly recorded
and deposited in the form originally received.
- Issue receipts for cash, using a pre-numbered receipt
book.
- Conduct unannounced cash counts.
- Reconcile cash receipts daily with appropriate documentation
(cash reports, receipt books, mail tabulations, etc.)
- Centralize cash receipts whenever possible.
- Avoid or discourage related party
transactions.
- Require that a written conflict of interest and code of ethics
policy is in place and that it is updated annually.
- Require that related party transactions be disclosed and be
approved by the Board.
- Require competitive bidding for major purchases and
contracts.
- Discourage the hiring of relatives and business transactions
with Board members and employees.
Reason for
chosing control
- Internal controls on financial reporting have become
increasingly relevant, as risk management has become more
crucial
- Effective internal controls ensure accuracy in financial
reporting, compliance with laws and regulations and efficient
operations