Tim Stepp, Internal Audit

1. Tim Stepp, Internal Audit

2. Agenda • Review of Financial Guide • Fraud Update • What questions/concerns do you have?

3. Financial Review Guide • Purpose: to assist congregations that cannot hire a CPA to perform a financial review. • Members of the congregation or unaffiliated person can volunteer their time to perform the review. • Whoever performs the review CANNOT be related to the Treasurer of the church.

4. Bank/Investment Accounts After the books are closed: • Bank Reconciliations are performed. • Request from each bank/investment account the account balance, and the authorized signers on the account. • Verify Safety Deposit Box access

5. Income • Offering counted by two unrelated persons. • Review deposit slips for timeliness and compare to secretary/treasurer records. • Test a sample of counter’s documentation vs. deposit slips and bank statements for accurate postings of offerings and correct designations. • Review the original books of entry for other income and that it is appropriately accounted for. • On a test basis conduct donation confirmations.

6. Disbursements • Invoices are properly approved. • Verify that the cancelled check matches the invoice information. • All checks are accounted for. • Accounts that are charged are noted on invoice. • Invoices greater than 30 days are accrued for. • Per capita/mission apportionments are paid accordingly. • Procedures in place to account for restricted gifts.

7. Reports • Approved budget is included. • Controls for over budget expenditures are in place. • Policy for restricted funds reviewed. • Reports are provided in timely fashion. • Report distribution is appropriate. • Balance Sheet and Statement of Income/Expense prepared.

8. General Ledger • Restricted funds are separated appropriately. • Internal controls for receipts and disbursements are reviewed. • Verify fund balance from prior year and correct balance is carried forward.

9. Administrative • EIN, tax filings, deed to church property, mortgage, and insurance policies are safeguarded. • Adequate insurance coverage. • Church has separate bond for people handling money. • Where and how documents are safeguarded noted, and who has access.

10. Payroll/Tax Records • Personnel files are kept confidential and secure. • Tax forms are issued timely to all personnel. • Payroll tax deposits and timely remittances to government occur. • Proper 1099 filing and approvals for persons paid over $600 (contracts/honorariums). • Test that the appropriate amount of tax is withheld. • Vouch payroll and tax records coincide with actual disbursements made.

11. Organizational Fraud Update

12. Fraud Statistics 2016 • Total Loss - $6.3 Billion (2,410 cases studied in 114 Countries) • Median Loss - $150,000 (same for small and large organizations) • Average Time to Detect – 18 Months • Most Common Method to Detect - Tips (39%)

14. Top 3 Control Weaknesses that contributed to Fraud • 29% - Lack of Internal Controls • 20% - Override of Controls by Management • 19% - Lack of Management Review

15. Behavioral Red Flags of Fraud • 45% - Living Beyond Means • 30% - Financial Difficulties • 20% - Close Relationship with Vendors/Customers • 15% - Wheeler Dealer Attitude • 15% - Family Problems • 8% - Refusal to take Vacation

16. QUESTIONS??? Joined by: Denise Hampton, CPA – Presbyterian Mission Agency Toni Carver-Smith – Presbyterian Mission Agency