Month: May 2011

Internal control

Essentials of Internal Control – full article

 

Here is the full text of my article, Essentials of Internal Control, appearing in Church Management News from Bank of the West.  The online article is here.

The article discusses three key ideas:

  • The bookkeeper should not sign checks
  • Trust is NOT an internal control
  • Review unopened bank statement by someone outside of accounting

Essentials of Internal Control

By James L. Ulvog, CPA

The business administrator of a nearby church has been formally charged with embezzling close to $1 million over four years, according to a recent newspaper article. Few details are publicly available. I have friends who worship there, so this hits close to home. I grieve for my friends, the congregation, believers whose faith has been shaken, and even the accused man and his family.

Last year, the bookkeeper of a women’s shelter in my area was sentenced to one year in prison for embezzlement. The executive director of the center was quoted in a newspaper article as saying the shelter had to sell one of their several houses in order to keep operating. The director said eighty women and their children were denied services.

I was going to start this article with a rational appeal to logic as the way to encourage more emphasis on internal controls in our churches. Instead, I would like you to ponder the devastation that follows in the wake of a disaster that can arise from a breakdown in internal controls. The previous reports are only two examples. One of the main goals of developing internal control is to prevent these situations. I could tell you of many more tragedies. A few moments of searching the internet will find dozens of stories.

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Good controls protect from false accusations

 

The following text from Once Upon Internal Control is the background for Cartoon #3:

The reporter calls

About a year after the bookkeeper started, a newspaper reporter called to talk to the office manager. The reporter said she had credible information that the pastor was flying first class to his occasional speaking engagements. The reporter had indications from the same source that the pastor was really living it up during those trips. She wanted the church’s reaction to this rumor.

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Scenes from cartoons

Internal controls can protect the innocent from false accusations – cartoon #3

 

Another cartoon is up.  Southside Community Church is blindsided by false accusations when a reporter calls for a comment. Fortunately, they have good procedures and internal controls that prove the accusations are fabricated.

When a reporter calls, good procedures save the day:

[youtube http://www.youtube.com/watch?v=3vyNN9LOeWI]

Previous cartoons:

This cartoon is based on the text from Once Upon Internal Control found here.

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Count procedures

 

The cartoon on the count procedures is based on the following part of the book Once Upon Internal Control:

Monday mornings were a chatty time in the office. That is when the count teams prepared the deposit. Usually there were a few people sitting around waiting for the full team to arrive. On each team, there was one person who had the combination to the drop safe. Another person on the team had a key that opened up all of the bank deposit bags—those thick canvas bags with a heavy-duty zipper and substantial lock. When either the combination person or the key person was late, the count team would sit around and visit.

The bookkeeper had been around some less-than-ethical parts of the business community. She had seen others play games with the books. She did not think about it very hard, but she did have a vague awareness that the church was serious about all those policies they discussed. She knew it would not be possible to play those games here because the windows of opportunity were closed and locked.

Copyright © 2008 James L. Ulvog

Scenes from cartoons

Cartoon describing dual control over offering count in local church

 

Cartoon that describes dual control over the offering count.

[youtube http://www.youtube.com/watch?v=wuboFGqXAi4]

The cartoon is based on the book Once Upon Internal Control – A tale of good and bad ways to implement internal controls in a local church, written by James Ulvog, CPA.

Click for:

Internal control

Additional thoughts on bank reconciliations

Local churches normally have extremely tight staffing. This is not news to anyone.

Small churches and small parachurch ministries usually can get the bank reconciliations completed, do so accurately, and usually finish on a timely basis. I won’t go into detail on how to prepare a bank rec because I think everyone has that nailed.

Let’s take a moment to discuss the best practice for bank reconciliations. Then we’ll look at the reality and what could be done to improve controls.

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Bank reconciliations

 

The cartoon on bank reconciliations is based on these comments in the book:

Southside Community Church

Both churches were looking for a bookkeeper at the same time. The leadership at Southside Community Church was pleased to get an experienced bookkeeper on board quickly.

Her life journey had been rough—lots of emotional scars. She was relieved during the interview when the church did not dwell on the details about her life B.C.—you know, before Christ. She was a relatively young Christian. She did not know a lot about the Bible, but she knew she had been forgiven much and she was grateful much. She was absorbing everything she could.

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