QB Internal Financial Controls 0647-02 ZZqbb

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                   TO:  Interested Ministries using QuickBooks (TM) (QB)                                               FROM: Jim Bramer, Retired CPA-Auditor
                                                                                                                                                                        FILE:  0647-02/qbb
                                                                                  

                    RE:  QB & Internal Financial Controls                                                                             Originated in August 2000                          


  Below is a hypothetical Online Email thread between any one of the following MFTeam members: PAT (Ministry Chief Executive), LEE: (Ministry Volunteer Treasurer), or FRAN: (Ministry Computer Bookkeeper) and  Jim@bcidot.org    Click here and go to List of threads (THRDs) at www.bcidot.org


FR: Pat

     In recent months, Jim, a number of CPA-Auditors have waved some "Yellow/Red flags"  before us about our QuickBooks (TM) (QB)  accounting system. They say that it is too "User Friendly" which could create some problems for us. Your comments please..... 

FR:  Jim@bcidot.org    

        Right, and I probably have been too unprofessional about this in my desire to have Ministries have a worthwhile computerized Ministry Fund Accounting system as set forth within  0601.   Please  Go Here  for another resource along these lines.

FR:  Pat

    I know you are an advocate of using QB for Ministries, Jim, and I am convinced that it is just what we need in order to continue getting the good grades we get ---- although we have gotten a less than ideal grade on something called "Internal Financial Controls".   Tell me more about such matters.

Fr: Jim

        Yes, Pat,  but within a sample Grade report 0128   your Ministry would get very good grades in the accounting system and reporting portion.  
        First, let's be sure you understand what it means to have good "Internal Financial Controls."  When you go to  0039  you will note some ideals of this nature plus this definition:  

"Steps and procedures by which what one independent person does in carrying out their financial tasks becomes a check and balance on what another independent person does."  

        At the bottom of this publication there are other of our writings on this topic.

FR: Pat

    OK, please give us some specific examples within QB where we have a problem.    

FR: Jim

        First, a major reason why a QB system is so "User Friendly", or why it is "INTUIT-ive."  A Ministry Computer Bookkeeper, like Fran, can easily process a Journal Entry or can easily go back and change an accounting transaction.  In various deceptive ways, this means that a dishonest person can change a receipt/payment, or a transaction, so that they steal from the Ministry.  It is undesirable to go into the specific horrific details of what we CPA-Auditors have found along these lines, but it happens and each Ministry MUST protect itself from such possibilities.  

FR: PAT

    Ouch ..... that hurts.  We try to hire only honest Christian folk.

FR: Jim

                I know, Pat.  But all of us are human and we are all subject to temptations that Satan loves to send our way --- especially when it comes to money.  All of us have money needs, and a Ministry must reduce the temptation opportunities.  In addition to those mentioned in  0039  we have found that the best approach is to have such "INFER"nal Financial Control" practices as these examples:

  •   Cash Receipts (green stuff) is in sight of and handled by two unrelated people until it gets to the Bank.

  •   Cash and Check Receipts are deposited intact, or all deposits to the bank must be balanced to some documentation.  Or you do not deposit some and keep some on hand, etc. 

  •   Check Signors are not Check Writers and they compare disbursements to authorized supporting documents.

  •   The Cash Receipts and Cash Disbursements Bookkeeper does NOT do the Ministry monthly Bank Reconciliation.  The Bank Statement goes directly to another person who does this task;  this includes periodic testing of such things as agreement of cancelled checks to the QB books, etc. 

  •   That a finalized and completed  QB month is closed - or "set in concrete." This means that someone can NOT go back and make changes to QB transactions of closed months.

  •    Then a printed (probably of each closed month) copy is made of what we accountants call the General Ledger (detailed record of all transactions by account) for a permanent non-computer maintained financial record. Please go to  0082  for Record Retention matters. 

  •    Provide those who have made donations to the Ministry, or who owe the Ministry money, with transaction statements that independently flow from someone other than your people who maintain such records.

  •    Go to  0211  and learn more about more how you would print out QB Journal Entries and use such print-outs for internal control purposes.

  •    Go to  0021  and learn about non integrated Donation Accounting System and Control Acct and Subsidiary List issues.
     

FR: Pat

    Uhhhh, Jim.... that sounds like a lot more Red Tape; which equates to more time and administrative costs.  Reminds me of a Board member who recently chastised our office staff for  'jumping through too many unnecessary administrative hoops";  or doing too many administrative tasks and keeping too many records, etc.  Seems like much of the above fits into that category.  Is it really necessary to do what you mentioned above?

FR: Jim

        Absolutely,  in my judgment !  
        As much as is humanly possible, the Ministry's Board and Staff must be the absolute best fiscal steward; as you remember that you are handling someone else's money, or handling fiduciary/trust funds, particularly since your Ministry has a Christ Centered purpose and supported by the Christian public.
        There also is a credibility issue. 
        In my opinion, proposed actions like these are valued and necessary overhead expenses as they provide security and a protection for both the Ministry and the individuals handling money.  Honest individuals also need protection -- It goes both ways.
        From a personal perspective .... I would pray when I was traveling to do  CPA-Audits  for a Ministry that their people were not succumbing to such temptations. And they would NOT become one of my
"MINISTRY DEFALCATION HORROR" stories. However, if it was happening, I would pray that it would be found and corrected.
        Please do NOT sacrifice QB provided efficiency (INTUIT-iveness)  for veracity.  

FR: Pat

        What solutions are there to these apparent "Loosey Goosey"  aspects of the QuickBooks (TM) (QB)  accounting system?  

FR: Jim

       The most significant step is to do what I call  "Set Things in Concrete" .... or you utilize QBs indicated feature, at a certain point in time (especially at the end of the fiscal year, etc),  of not allowing any changes except by use of certain Internal Auditor approved passwords or other approved methods.         
        Please also go to
 0676 and find out how certain Helpers (ASSURORS) can economically assist a Ministry user of
QuickBooks (TM) (QB) 
to overcome many of these Internal Finance Control deficiencies.

          FR: PAT

    Will do -- thanx, Jim,  for alerting us to all of this.  I understand now why the QB System itself is not enough by itself but the transaction handling procedures/system itself; you are probably right and we do need to make some changes.  No way do we want to go through such trauma or contribute to any of your  "MINISTRY DEFALCATION HORROR" stories.  Let me share this with our Ministry Finance Team and get back to you.


See below for other of our Publications on this topic 


PUBLICATION DESCRIPTION

I. D.

A>

Cash handling at Camps-Conferences

0042

B>

Check Signing and Internal Controls

0066

C>

CPA-Audits -- does not include

0003

fraud detection per se

D>

Financial Policies --- Sample at a Church

5005

E>

Glossary -- Internal Controls definition etc

0063

F>

Internal Financial Controls-in detail

0039

G>

Ministry Finance Team Mandate

0000

Includes Internal Finance Controls

H>

Ten Commandments at a Ministry

0032

J>

TRUISMs on this topic

0069


      Please Click here for more topics having to do with the use of "QuickBooks and Ministry Fund Accounting"  on www.bcidot.org.  The bulk of this Publication originated in August 2000 and was    UPTD: March 09, 2012

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