In House Audit Guidlines

In-house audit:

A larger congregation will probably employ the services of an outside professional auditor. A small congregation may ask the stewardship department to select an auditing committee of competent laypeople to do the task. 

The auditing committee should not include individuals who have been involved in handling funds or keeping records, nor should members of their families be selected.

A good book on audits for non-profit organizations would be most helpful.

Guidelines for an In-house audit:

If your books must be audited by a non-professional committee, here are some guidelines.2

 1. Income

a. Check how money is received (Sunday offering, mail, office) and what happens to it before it is deposited. Who handles, counts and deposits it? Is a timely deposit made?

b. Compare the entries in the cash-receipts journal with deposit slips and counters’ reports.

c. Compare the financial secretary’s monthly report with the treasurer’s report.

d. Check to see if designated monies were used for their intended purposes.

e. Verify income from each regular contributor through a year-end statement. This will also serve as an inducement to meet pledges not yet paid.

f. Send confirmation letters to verify bank balance.

g. Investigate non-sufficient fund checks and other items charged back by the bank.

h. Investigate any checks outstanding for more than 30 days.

i.  Prove footings in the cash-receipts journal.

2. Expenditures

a. Prove footings in the cash-disbursements journal.

b. All checks listed in the cash-disbursement journal should be made with pre-numbered checks. The number, date, amount, payee and accounts should also be listed in the journal.

c. From the cash-disbursements journal, trace the entries to the general ledger for proper recording.

d. Determine who authorizes expenditures. Is there sound budget control?

e. Examine payroll records. Has the treasurer complied with government regulations about social security taxes, unemployment insurance, worker’s compensation insurance, income tax withholding, and other state and federal requirements?

f.  Account for all checks used.

g.  Check how expenditures are made. Who determines payment?  Who schedules Denominational outreach payments?

h. Reconcile the bank statement.

3. Petty-Cash Funds

Check for control of petty-cash funds. Examine disbursement vouchers.

4. Debt RetirementDebt balances to all lenders should be verified in writing. Examine loan conditions and repayment schedules.

 5. Insurance Policies 

Check policies for limits (coverage, premium, and payment terms) and expiration dates.

 6. Saving Certificates

Check amounts, interest and conditions of all saving accounts. Having the auditing committee examine every entry in the records and every document supporting those entries would involve a tremendous expenditure of time. Such a thorough examination is not feasible. The committee is primarily concerned about control and accuracy. When internal control centers on one person, the risk for problems is high.

More than one person should count the offerings and make the deposit. Records of individual contributors should not be kept by the person who writes the checks. It is the auditing committee’s responsibility to check all procedures of internal control and suggest corrections, if needed.

Instead of going through every item in detail, the committee can check the accuracy of financial records through tests and samples. To test the financial records means to examine a part of or a sample of all the financial transactions to determine accuracy. By examining a part of the records, the committee can draw conclusions about the whole set.

Random and stratified samplings are some of the judgment devices used by professional auditors.

In random sampling, the committee decides the size of its sample and tests the entire population. For example, the committee may wish to examine 50 checks out of the 500 that were written, randomly selected. They could establish guidelines that check the disbursement journal and check in detail all transactions in a random manner.

In stratified sampling, the material is divided into groups. A guideline for stratified sampling might read: The committee will examine all expenditures of more than $150 and five percent of those less than $150 in the months of September and July. When samples detect numerous or serious errors, the committee will want to determine the nature of the error and whether to increase its sample or use other procedures.

The auditing committee report to the church council should be complete, fair, and confidential. (Suggested written format for such reports may be found in any auditing textbook.) Errors in recording and reporting are not necessarily indicators of fraud. Many church treasurers are untrained and give of their time only after much coercion. A kind word and a helpful suggestion will go a long way in improving their skill. When properly done, the annual audit signals to the congregation that their leadership takes its stewardship responsibility seriously. The auditing report should be oral and written so that a legal record is at hand in case of later examination.

 Reprinted from Accounting Systems for Churches, Financial Recording and Reporting, Augsburg Publishing House, 1984, pp. 54-55.

 

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