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.
I wrote an article for Bank of the West called Essentials of Internal Control. It discusses one superb internal control you should be using for cash, explains that trust is not an internal control, and offers a creative idea to improve control over cash.
A one sentence summary of internal control is at the end of this paragraph:
Welcome to the blog for the book Once Upon Internal Control. This will be the place to see cartoons based on the book and seek discussion on the topics.
The goal of the book, the cartoons, and this blog is to help local churches improve their internal controls.
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.