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Sharing of Audit Experience (July 2008) Sharing of Audit Experience Basic Principles of Good Financial Controls Common Audit Findings Audited Annual Accounts (Note: related to aided non-IMC schools) 1. Basic Principles of Good Financial Controls Basic Principles of Good Financial Controls

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sharing of audit experience
Sharing of Audit Experience
  • Basic Principles of Good Financial Controls
  • Common Audit Findings
  • Audited Annual Accounts

(Note: related to aided non-IMC schools)

basic principles of good financial controls
Basic Principles of Good Financial Controls

Good Controls =

  • Proper keeping of books of account and supporting records.
  • Proper documentation and reporting including minutes of SMC meeting, Fixed Assets Register, etc.
  • Sound budgetary control.
  • Adequate supervision.
basic principles of good financial controls cont d
Basic Principles of Good Financial Controls (cont’d)

Good Controls =

  • Proper authorization and approval of collection and payment procedures.
  • Payments properly supported.
  • Sound asset control.
  • Proper procurement procedures.
  • Clear segregation of duties.
basic principles of good financial controls cont d6
Basic Principles of Good Financial Controls (cont’d)

Underlying Principles =

  • Prudent in use of financial resources.
  • Set up and adhere to good internal control procedures.
  • Record important matters in the minutes ofSMC meeting, e.g. appointment,resignation, etc.of staff and acceptance of donation.
basic principles of good financial controls cont d7
Basic Principles of Good Financial Controls (cont’d)

Underlying Principles =

  • Comply with the requirements of Codes of Aid, School Administration Guide (SAG) and relevant EDB circulars/guidelines.
basic principles of good financial controls cont d8
Basic Principles of Good Financial Controls (cont’d)

Examples of Supervisors’ roles:

  • Keep proper books of accounts.
  • Operate bank accounts in the name of the school (include cheque signing).
  • Submit the audited annual accounts of school to EDB.

(Code of Aid)

basic principles of good financial controls cont d9
Basic Principles of Good Financial Controls (cont’d)

Examples of Principals’ roles:

  • Keep unused cheque books under lock.
  • Review monthly bank reconciliation statements. Should initial and date the bank reconciliation statements after checking.
  • Approve write-off of assets and other valuables. Inform SMC of the write-off cases.

(SAG)

common audit findings
Common Audit Findings
  • Procurement
  • Collections
  • Payments
  • Operation of Bank Accounts
  • Safe keeping of Assets
  • Trading Operations
a procurement
A. Procurement
  • To meet the basic principles of “Fairness”, “Openness” and “Value for Money”.
  • To conduct quotation/tender exercises for procurements of stores/equipment and services.
a procurement cont d
A. Procurement (cont’d)

Requirements in EDBC No. 15/2007 –

  • Declaration of conflict of interest
    • Sign an undertaking for declaration of interest.
    • Requirement should be brought annually to notice of staff.
  • Security of Information
    • Sign an undertaking for not making unauthorized disclosure of quotation or tender information.
    • Requirement should be brought annually to notice of staff.
  • Properly prepare quotation/tender records
  • Group store/services of same category in the same purchase before inviting quotation/tender.
a procurement cont d16
A. Procurement (cont’d)

Requirements in EDBC No. 15/2007 (cont’d) –

  • Do not split order to evade financial limits.
  • Provide identical quotation/tender specifications.
  • Tender Opening & Vetting Committee (TOVC) and TAC made up of different staff members.
  • Provide justifications for not accepting the lowest tender/quotation.
  • Check procurement records randomly (by senior staff).
a procurement cont d17
A. Procurement (cont’d)

Points to note:

  • Schools should conduct tender/quotation exercises, for example -
    • 24-month broadband internet service;
    • 36-month service in renting photocopying machines;
    • 12-month security guard service.

(Remark: Financial limits based on total contract value instead of monthly payments.)

a procurement cont d18
A. Procurement (cont’d)

Points to note (cont’d):

  • Schools should conduct quotation/tender exercises for new and renewal of contracts.
  • Quotation/tender documents should be kept properly and intact.
b collections
B. Collections
  • Daily Collection Summary (DCS) is used to record school incomes daily. (Sample at Appendix 6 of Chapter 6 of the SAG)
  • DCS should include:
    • Date of receipt
    • Serial number of official receipts
    • Nature & amount of income collected
    • Bank-in date
    • Initial of staff responsible for amount collected

(SAG 6.5.3)

b collections cont d
B. Collections (cont’d)
  • Check DCS to ensure completeness & accuracy of collections.
  • Avoid keeping large sums of cash.
  • Avoid pre-signing of receipts.
  • All school incomes shall be paid into the appropriate bank accounts maintained in the name of the school.

(SAG 6.5.3)

b collections cont d21
B. Collections (cont’d)
  • Any hire charges of accommodation should be collected in advance. 40% of net balance after deduction from relevant expenses should be credited to School and Class Grant.

(EDBC No. 9/2005)

b collections cont d22
B. Collections (cont’d)
  • Schools should:
    • obtain SMC’s prior approval for accepting donations.
    • register details of all donations received by schools.
    • not allow the choice of trading operators/ suppliers to be in any way influenced by a donation or any other form of advantages.

(EDBC Nos. 13 & 14/2003)

c payments
C. Payments
  • Support all payments by original invoices.
  • Stamp “Paid” on vouchers and invoices to avoid duplicate payments.
  • Attach original invoices with full details of goods/services provided to payment vouchers.

(SAG 6.5.4)

c payments cont d
C. Payments (cont’d)
  • Maintain accurate leave records for staff so as to avoid incorrect salary payment.
  • If the income from school activities is credited to school’s own funds, then the relevant expenses should not be charged to Government funds.
c payments cont d25
C. Payments (cont’d)

  • Follow ambits of grants laid down by EDB e.g. OEBG under EDBCM No. 102/2007
c payments cont d26
C. Payments (cont’d)

  • Follow ambits of grants laid down by EDB e.g. OEBG under EDBCM No. 102/2007 (cont’d)
d operation of bank accounts
D. Operation of Bank Accounts
  • Supervisor and one registered manager to sign cheques so as to maintain good control.
  • Prepare & check bank reconciliation statements monthly.
  • Do not pre-sign cheques.
  • Place surplus funds not immediately required for use in savings account or time deposits with licensed banks in HK.

(SAG 6.5.6 & 6.5.3)

e safe keeping of assets
E. Safe Keeping of Assets
  • Keep Fixed Asset Register properly and up-to-date.
  • Conduct physical checking of school assets at least once a year, investigate and report any discrepancies to SMC.
  • Any write-off should be done with the approval of the school head.
  • A report on the write-off should be passed to the SMC for information.
  • In case of loss of assets due to theft/ burglary, report the case to the Police immediately.

(SAG 6.5.5)

slide29

F. Trading Operations

  • Obtain prior approval for trading operations from the REO.
  • Subsequent changes to the approved trading operations (e.g. change of trading operator/ supplier, changes to the terms of the agreement) also require prior approval.

(EDBC No. 13/2003)

slide30

F. Trading Operations(cont’d)

  • The profit from sale of exercise books, school uniforms, stationery, equipment and other items (other than textbooks) should be limited to 15% of cost price.
  • Rates, government rent and other relevant expenses in respect of tuckshop area should be borne by tuckshop operator.

(EDBC No. 13/2003)

f trading operations cont d
F. Trading Operations (cont’d)
  • Schools should conduct quotation/ tender exercise at appropriate intervals at least once every three years or before renewal of a contract as appropriate.
  • Schools should inform all suppliers and contractors in writing that the offer of advantages to school staff in connection with their official duties is illegal.

(EDBC Nos. 13/2003 & 15/2007)

audited annual accounts cont d
Audited Annual Accounts (cont’d)

Points to note:

  • Surplus balance of OEBG exceeding 12 months’ provision will be clawed back.
  • Salaries Grant Account is a deficiency grant account and should be zero balance as at 31 August each year.
  • The net surplus of government grants should be represented by cash/bank deposits or other current assets for gov’t funds. A fund reconciliation should be compiled.
audited annual accounts cont d34
Audited Annual Accounts (cont’d)

Requirements in EDBC No. 27/2003:

  • Appointment of Auditors

Conduct competitive selection process in accordance with EDBC No. 15/2007 periodically (preferably every three years).

  • Audit Engagement Letter

Agree with auditors on the terms of audit engagement and record in audit engagement letters.