Internal Controls For Small Governments

1. Internal Controls For Small Governments Panel Discussion NCGFOA Summer Conference Moderated By:

2. Meet Today’s Panelists Moderator Eddie Burke, CPA Assurance Partner Cherry Bekaert LLP Charlene Allen Assistant Director of Finance Town of Kill Devil Hills Deanna Barefoot Financial Services Supervisor Harnett County Scott Edwards Finance Director City of Raeford Panelists Kim Kenny Finance Officer Town of Knightdale Tina Strickland Financial Services Supervisor Harnett County

3. Today’s Learning Objectives • Why do we have internal controls • Importance of segregation of duties • Basic internal controls • System Implementation

4. Internal Control Objectives Internal Control Should Have The Following Objectives:

5. Segregation of Duties

6. Basic Internal Control Principle

7. Complicated to Design and Implement Especially for Small Organizations • Segregation of Duties Has Cost Associated • Limited Resources • Must Be a Focal Point For All Staff • Evaluation • Documentation • Communication

8. Management (management needs to be defined) • Department Heads • Supervisors • Staff • Auditors Responsibility

9. Primary Duties That Should Be Segregated Some Examples of Incompatible Duties Authorizing a Transaction, Receiving and Maintaining Custody of the Asset That Resulted From the Transaction Receiving Funds (Checks or Cash) and Approving Write-off of Receivables Reconciling Bank Statements/Accounts and Booking Entries to General Ledger Depositing Cash and Reconciling Bank Statements Approving Time Cards and Having Custody of Pay Checks • Authorization or Approval • Custody of Assets • Recording Transactions • Reconciliation / Control Activity

10. Thinking outside the box for small governments • When duties cannot be sufficiently segregated due to the small size of a unit, it is important that mitigating controls, such as a detailed supervisory review of the activities, be put in place to reduce risks. • Looking to other departments that may have personnel capable of performing or reviewing activities. • Asking board members to become involved • Looking to business leaders outside the organization or hiring outside resources.

11. Basic Controls

12. Monitor bank accounts on a regular basis Require reconciliations of accounts on a regular basis– cash, receivables, and payables Cross training and rotation of duties Have a vacation policy and enforce it Use of positive pay for checks and ach controls Undistributed checks should be stored locked up General controls receipts, vendor payments and payroll

13. Proper receipting with use of receipt books if not using a register or cashiering system Checks and balances over deposit preparation Clarity on process for getting deposits to the bank in accordance with daily deposit statute Receipts

14. Vendor set up by someone other than accounts payable • Payment of original invoices not statements only • All invoices reviewed and pre-audited • Dual signatures or approvals on checks & wires – at least one original • Sequentially numbered purchase orders and checks • Establish a dollar limit for purchases requiring a purchase order and require multiple approval levels • Establish a dollar limit for contracts requiring council approval (including change orders) Vendor Payments

15. Payroll Payroll changes processed by HR but implemented by payroll/Finance Pre-audit of personnel action forms with changes to salary Employees receiving checks should be required to sign for them at least annually Verification of hours worked and approval of overtime hours Verification of manual calculations Match payroll register to supporting documents Written requests for changes to marital status, withholdings, and deductions All banking changes made in person – not mail, phone, or email (example of what happened when we didn’t) Pre-note of ACH for new employees and changes to existing employees, first pay after change is by check

16. Purchase Cards and Pre-Audit

17. General Workflow For Purchase Cards • Process for Pre-audits • Approval process • purchase orders • transaction approval • users • supervisor • purchasing agent • finance officer

18. Implementation of Internal Controls

19. Implementation of New Systems

20. Skill Level of Employees Ability to Write Your Own Financial Statements Timely Preparation of Financial Statements

21. Q&APanel Discussion

22. Q&A Moderator Eddie Burke, CPA Assurance Partner Cherry Bekaert LLP Charlene Allen Assistant Director of Finance Town of Kill Devil Hills Deanna Barefoot Financial Services Supervisor Harnett County Scott Edwards Finance Director City of Raeford Panelists Kim Kenney Finance Officer Town of Knightdale Tina Strickland Financial Services Supervisor Harnett County