Internal Financial Controls

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Internal FinancialControls
By Jorge I. Franchi, 32, Chief Financial Officer
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Internal Controls Definition

• The methods and procedures used to
• Safeguard assets
• Preserve financial records reports
• Adhere to policies, regulations, laws
• Promote effective efficient operations

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Internal Controls

• Control Principles
• Segregation of duties
• Authorization and approval
• Review and reconciliation
• Custodial security agreements

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Internal Controls

• Control Principles (contd)
• Physical controls
• Training and supervision
• Documentation
• Cost/benefit

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Common Statements

• We are too small.
• Nothing can happen here.
• We cant afford it.
• Dont you trust me!?
• We do whatever the Secretary/PR tells us.

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Segregation of Duties

• The most important control principle
• No individual should perform all accounting
  functions.
• Different segregations for large, medium, and
  small Valleys

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Cash Receipts

• Medium to large Valleys
• First Person
• Receive checks
• Stamp for deposit
• Create a receipts log

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Cash Receipts

• Medium to large Valleys (contd)
• Second person (Valley Secretary)
• Receive checks from first person
• Record payment
• Prepare deposit.
• Third person (Personal Representative)
• Reconcile first two

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Cash Receipts

• Small Valley (only Secretary in office)
• Secretary
• Receives
• Stamps
• Deposits
• Records
• Personal Representative
• Reviews receipts regularly
• Compares statements withdocumentation

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Petty Cash

• Cash held in secure location
• Receipts
• First person
• distributes funds
• collects receipts
• Second Person
• reconciles
• replenishes

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Cash Disbursements

• Medium to large Valleys
• First person authorizes purchase
• Second person approves invoice prepares check
• Third person (PR) signs check.

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Cash Disbursements

• Small Valley (only Secretary)
• Secretary authorizes purchase, receives and
  approves invoice and prepares check
• Personal Rep. signs the check after reviewing
  supporting documentation

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Cash Disbursements (Cont.)

• Checks should not be issued without the proper
  support (invoices).
• No payment from statements
• Credit cards
• Blank checks should not be signed.

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Budgetary Control

• Objective 5 from the prior Leadership Conference

All Valleys are to operate under a budget.
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Budgetary Control

• Budget preparation
• Prepared annually
• Prior period actual results as a guide
• Use of external numbers
• Comparisons
• Budget to actual
• Current year actual to prior year
• Reviewed of variances

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Budgetary Control (Cont.)

• Executive/finance committee review
• Distribution membership

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Bank Statements

• Received by a party independent of the check
  writing and approval.
• In most cases, directly to the Personal Rep.
• The statements and cancelled checks, including
  endorsement, should be reviewed monthly.

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Bank Statements (Cont.)

• All bank accounts must be recorded in the
  financial statements including
• Checking accounts
• Credit card accounts
• Petty cash accounts
• Savings accounts

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Financial Statements

• External audit
• When should one be done?
• Is it a requirement?
• What other services should be looked at?
• Who benefits from an audit?
• Should it be done annually?
• Internal audits

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Miscellaneous

• All investment accounts must be included in the
  financial statements.
• No signing of blank checks
• Use only pre-numbered checks
• If advances payments become necessary
• Number of check signers

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Miscellaneous (Cont.)

• Number of required signatures per check
• Unusual or unfamiliar vendors viewed with greater
  skepticism
• Remain currentestablish and keep a regular
  schedule.

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Miscellaneous (Cont.)

• When uncertain about how to record something,
  ask.
• Whistleblower policies
• Conflicts of interest

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Contact Information

• jfranchi_at_scottishrite.org

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Internal FinancialControls
By Jorge I. Franchi, 32, Chief Financial Officer