Can anyone help me with this?
The board of trustees of a local church is concerned about the internal accounting
controls pertaining to the offering collections made at weekly services. They ask you to
serve on a three-person audit team with the internal auditor of the university and a CPA
who has just joined the church. At a meeting of the audit team and the board of trustees
you learn the following.
1. The church’s board of trustees has delegated responsibility for the financial management
and audit of the financial records to the finance committee. This group prepares
the annual budget and approves major disbursements but is not involved in collections
or recordkeeping. No audit has been made in recent years because the same
trusted employee has kept church records and served as financial secretary for 15
years. The church does not carry any fidelity insurance.
2. The collection at the weekly service is taken by a team of ushers who volunteer to
help count the offerings after each service. The money is then placed in a locked box
and stored in a secure location until it can be deposited in the bank.
3. The financial secretary is responsible for recording the collections in the accounting
records and reconciling the bank statements. The financial secretary has complete
access to the church's accounting records and is the only one with the ability to make
changes or adjustments.
4. The pastor has the authority to make disbursements from the church's accounts, but
all checks require the signature of the financial secretary.
5. The church's financial records consist of a manual general ledger and a computerized
database for donor information.
To address the concerns raised by the board of trustees, the audit team should follow
the steps below:
Step 1: Review the church's internal controls related to offering collections and financial management. In particular, focus on the roles and responsibilities of the finance committee, the financial secretary, and the pastor in handling church funds, as well as the controls in place for counting and storing offerings.
Step 2: Assess the risk of fraud or misappropriation of funds given the lack of segregation of duties and the trusted employee who has been handling church records for 15 years. Consider the potential for unauthorized changes to financial records or misappropriation of funds by the financial secretary or pastor.
Step 3: Evaluate the physical controls in place for counting and storing offerings. Ensure that adequate safeguards are in place to prevent theft or loss of funds, such as locked boxes and secure storage.
Step 4: Examine the church's accounting records, including the manual general ledger and the computerized donor database. Look for any discrepancies or irregularities in the recording of collections and disbursements.
Step 5: Conduct a bank reconciliation to compare the church's accounting records with the bank statements. Verify that all collections are being properly recorded and that there are no unauthorized transactions or discrepancies between the two.
Step 6: Develop recommendations for improving internal controls and reducing the risk of fraud or misappropriation of funds. This may include suggestions for segregating duties, implementing regular audits, obtaining fidelity insurance, and implementing stronger physical controls for counting and storing offerings.
Step 7: Present the findings and recommendations to the board of trustees. Explain the weaknesses in the current internal controls and the potential risks involved. Provide a plan of action for improving controls and reducing the risk of fraud.
Step 8: Monitor the implementation of the recommendations and conduct periodic follow-up audits to ensure that the suggested controls are being effectively implemented and maintained.
By following these steps, the audit team can help address the concerns raised by the board of trustees and improve the internal accounting controls of the church's offering collections.
collect the offerings. They count the money after the service and hand it over to the
financial secretary.
3. The financial secretary is responsible for recording the collections in the church's
accounting records and depositing the money into the bank. The financial secretary
keeps the accounting records on a standalone computer with no backup or password
protection.
4. The financial secretary is the only person with access to the accounting records and
the church's bank account. They also have the authority to write checks for church
expenses.
5. The financial secretary has a reputation for being very committed and trustworthy, and
there have been no indications of any financial wrongdoing.
Based on this information, the audit team identifies several internal control weaknesses
that increase the risk of fraud or errors in the handling of the offering collections:
1. Lack of segregation of duties: The financial secretary has complete control over the
collections, recordkeeping, and banking activities. There is no independent oversight
or verification of these tasks, increasing the risk of misappropriation or errors going
undetected.
2. Lack of independent audits: The church has not had an external audit in recent years,
and no internal audits have been conducted. Without regular reviews of financial
practices, there is a higher risk of fraudulent activities going unnoticed.
3. Lack of fidelity insurance: The church does not have fidelity insurance to protect
against financial losses due to employee theft or dishonesty. This increases the financial
risk to the church if any fraudulent activities were to occur.
To address these internal control weaknesses, the audit team should recommend the
following steps:
1. Segregation of duties: The church should assign different individuals to handle the
collections, recordkeeping, and banking activities. This would ensure that no single
person has sole control over all aspects of the financial process, reducing the risk of
fraud or errors.
2. Regular internal and external audits: The church should establish a regular schedule
for both internal and external audits. Internal audits should be conducted by an
independent party within the church, and external audits should be performed by a
qualified CPA firm. These audits will help identify control weaknesses, detect
fraudulent activities, and ensure compliance with financial regulations.
3. Fidelity insurance: The church should consider obtaining fidelity insurance to protect
against potential financial losses due to theft or dishonesty by employees. This would
provide some financial security in case of any fraudulent activities.
Overall, implementing these recommendations would establish stronger internal controls
and mitigate the risk of fraud or errors in the handling of the offering collections. It is important for the audit team to communicate these findings and recommendations to the board of trustees and work collaboratively with them to implement the necessary changes.