Financial and Grants Management Institute - March 18-20, 20081 Developing and Managing Your Budget.
Financial and Grants Management Institute - March 18-20, 20081 Establishing Internal Controls.
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Transcript of Financial and Grants Management Institute - March 18-20, 20081 Establishing Internal Controls.
Financial and Grants Management Institute - March 18-20, 2008 2
Session Objectives
1. Provide an understanding of why an organization should have internal controls and the impact of not having adequate controls
2. Understand the key components of internal controls
3. Work hands on with participants to review examples of various policies
3
Nat’l & Community Svc. Act of 1990
Code of Fed. Regulations (CFR)
OMB Circulars (part of CFR)
State & Local Regulations
NOFO
Notice of Grant Award
Provisions
Certifications and Assurances
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What are Internal Controls?
• Internal controls are “processes” adopted by an organization’s board, management and other personnel designed to provide reasonable assurance regarding the achievement of:– Effectiveness and efficiency of operations– Reliability of financial reporting– Compliance with laws and regulations
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What are Internal Controls?
• System of checks and balances• Protect the organization from financial
abuse and enhance its ability to achieve its goals
• Not a “organizational burden,” it is a way to optimize of resources
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Why Have Internal Controls?
• Improve accountability to customers (Federal Government, CNCS, trustees, etc.)
• Help organization achieve performance and budget targets
• Improve reliability of financial reporting• Improve compliance with laws, regulations• Prevent loss of resources, public assets and
public trust
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Internal Control Objectives• Adequacy of audit trail
– Can a transaction be traced from the accounting records back to the original documentation (invoice, timesheet)?
• Segregation of duties– Are the various aspects of the accounting functions
separated and performed by more than one person?
• Physical safeguard of assets– Protection of the assets of the organization to ensure
its mission can be carried out
• Adequacy of Records– Are adequate records maintained to provide a proper
trail for the audit
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Internal Controls Interrelated Components
• Control environment– What is the atmosphere of the work environment?
• Risk assessment– Is your organization considered low risk or high risk?
• Control activities– What activities provide control within your organization?
• Information and communication– Is information communicated clearly to staff and is there
a means for staff to provide feedback? • Monitoring
– Are the controls monitored and reviewed to ensure that they are appropriate and meeting compliance requirements?
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A Good Control Environment Includes:
• Positive “atmosphere” in the work environment• Existence of a code of conduct and code of
ethics• Written job descriptions• Timely communications with board of directors• Written policies to hire, train, promote and
compensate employees• Safeguards for employees related to whistle-
blowing (Sarbanes-Oxley)• A clear chain of command
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Elements of Good Internal Controls
• Documented policies and procedures• Adequate review process for financial reports and
budgets• Adequate cash management procedures (e.g.,
monthly bank reconciliations by supervisory personnel)
• Physical safeguarding of assets• System to track participants’ & employees’ activities• System to follow up on problems to ensure resolution
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How Can Internal Controls Impact an
Organization?• Potential impacts of insufficient internal
controls: – Audit findings– Federal funds may be managed
inappropriately– Funding sources are jeopardized– Inconsistencies– Inefficient use of time and resources
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Audit Findings•Two types of audit findings
– A questioned cost is what is believed to be a violation of a provision of law, regulation, contract, grant, cooperative agreement or other agreement or document governing the expenditures of federal funds.
– A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce, to a relatively low level, the risk that errors or irregularities, in amounts which would be material to the financial schedules. This is also known as a reportable condition.
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Examples of Audit Findings Due to
Inadequate Internal ControlsGeneral:
• Late submission of financial status reports• Timesheet/evaluations not signed or dated
AmeriCorps:• Enrollment/exit of members not in WBRS or not
submitted on time• Inappropriate documentation for changes made
to timesheets
Senior Corps:• FGP: No written improvement plan for students
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Creation and Documentation of Internal
Controlsthrough Policies and
Procedures
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Policies & Procedures
• Documented policies and procedures are important because:– They are the standards for the organization’s
operations– They help in maintaining information that is
crucial to operations that would otherwise remain in employees’ “heads”
– They help in orienting new employees and substitutes if the appropriate personnel are absent
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Policies & Procedures• Policies should be established, followed,
monitored, updated and reviewed• As times change, so does the need for our
policies– Example: Internet access to cash accounts and
ability to make electronic transfers
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Written Policies and Procedures
Assist with consistency and clear communication of expectations:– Policies set expectations: “what is to be
done”– Procedures or processes describe “how is it
to be done”– Effective ones explain rationale and include
examples of principal transactions and completed forms
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Examples of Key Items Included in Policies &
Procedures– Authorizations of transactions– Payroll procedures– Cash receipts procedures– Procurement policies– Travel regulations
Specific Policies Governing Federal Funds:
– FSR completion– Drawdown of federal funds– Matching requirements
– Financial reporting– Budgeting– Record retention– Conflict of interest– Timekeeping
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Small Group Breakout
Let’s Review YOUR Policies
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Staff Timesheet - Basic Criteria
• Signed and dated by employee or by supervisor• Reflect after-the-fact time determination of actual
activity• Are prepared at least monthly and coincide with
one or more pay periods• Account for the total activity for which employees
are compensated and which is required in fulfillment of their obligations to the organization
• Provide support for charges for salaries and wages must also be supported by records indicating the total number of hours worked each day in conformance with the Dept. of Labor
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In-kind Contribution - Basic Criteria
• Document the donor’s basis for determining value of personal services, material, equipment, building, and land
• Obtain written acknowledgement from the donor to include:– Date and location of donation– Detailed description of item/service– Estimated value of contribution, how value was
determined, and who made the determination– Confirm that the contribution was or was not
obtained with federal funds – Name and signature of donor
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Job Description - Basic Criteria
• Job title:• Reports to:• Supervises:• Basic function: • Duties and responsibilities:• Qualifications:• Classification:
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Accounting Systems - Basic Criteria
• System must be capable of:– Distinguishing grant versus non-grant
related expenditures– Identifying costs by program year– Identifying costs by budget category– Differentiating between direct and indirect
costs (administrative costs)
• Maintains federal/non-federal matching funds separately from grant funds
• Records in-kind contribution as both revenues and expenses
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Chart of Accounts - Basic Criteria
• Numerical outline of accounts• Narrative description of each line item• Note special accounts created to track
CNCS specific grant funds
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Budgetary Controls - Basic Criteria
• Monitoring of budgets to actual year-to-date and current period expenditures or outlays
• Explaining any budget variations that are unexpected or unusual and determining necessary adjustments
• Ensuring compliance with laws, regulations, and CNCS provisions, particularly matching percentage requirements
• Requesting prior approvals for modification, if necessary
• Assuring budget changes are properly approved• Reviewing movements between line items and
verifying if they are within provisions and/or guidelines
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Documentation - Basic Criteria
Documentation should ensure that costs:• Conform to grant/contract limitations• Are allowable under the budget• Are treated consistently• Determined in accordance with Generally
Accepted Accounting Principles (GAAP)
All documentation should support:• What services or goods were obtained• Why the transaction is allowable for the grant
purposes• The value of the contribution
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Documentation Information
• Costs need to be:– Allowable– Allocable– Reasonable and Necessary
• Documentation should also reflect that these requirements were met
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Take it Home!1. Ensure accountability and transparency2. Know that internal controls affect every level
in all organizations irregardless of size3. Creation and monitoring of internal controls
is a continual process4. Strong internal controls allow an
organization to achieve its goals effectively and efficiently
5. Review current policies and procedures to be sure they will guide you to compliance