INTERNAL CONTROL DOCUMENTATION GUIDE

The material which follows was designed as an
aid in reviewing internal controls. It consists
of controls and suggestions for items which are
recommended for the operation of an non-profit
organization.

GENERAL

The following questions relate to the internal
accounting controls of the overall organization.

1. Duties for key employees of the
organization are defined.

2. An organization chart which sets
forth the actual lines of responsibility.

3. Written procedures are maintained covering
the recording of transactions.

a. Covering an accounting manual

b. Covering a chart of accounts

4. Procedures, chart of accounts, etc., provide
for identifying receipts and expenditures of
association dues or contributory funds by
contributor.

Account Number Guide:

001-049 Cash 150-299 Assets 576-599 Equity
050-099 Checking 300-399 Credit Cards 600-799 Income
100-149 Savings 400-575 Liability 800-999 Expense

5. The accounting system provide for accumulating
and recording expenditures by cost category shown
in the approved budget.

6. The organization maintain a policy manual covering

a. approval authority for financial transactions and

b. guidelines for controlling expenditures, such as
purchasing requirements and travel authorizations.

7. There are procedures governing the maintenance of
accounting records.

a. Subsidiary records for accounts payable,
accounts receivable, etc., are balanced
with control accounts on a regular basis.

b. Journal entries are approved and explained
or supported.

c. Accrual accounts provide adequate control
over income and expense.

d. Accounting records and valuables are secured
in limited-access areas.

8. Duties are separated so that no one individual has
complete authority over an entire financial transaction.

9. The organization use an operating budget to control
funds by activity?
10. Controls are in place to prevent expenditure of
funds in excess of approved, budgeted amounts.
For example, purchase requisitions are
reviewed against remaining amount in budget category.

11. The organization has obtained fidelity bond
coverage for responsible officials?

12. Financial reports are prepared for required
accounting periods?

CASH RECEIPTS

The following conditions are indicative of satisfactory
controls over cash receipts.

1. The individual responsible for the cash
receipts function does not sign checks or
reconcile the bank accounts and is not responsible
for noncash, accounting records, such as accounts
receivable, the general ledger, or the general journal.

2. Receipts are deposited promptly and intact.

Incoming mail:

1. Remittances are listed on a control sheet or other
mechanical device for comparison with the bank deposit
tickets.

2. Check remittances are restrictively endorsed by
the person opening the mail.

3. The person receiving cash does not have the
authority to sign checks and reconcile bank
accounts and does not have access to accounting
records other than cash receipts.


BILLINGS AND RECEIVABLES

The following conditions are indicative of
satisfactory control over billing and receivables.

1. Detailed receivable records are periodically
balanced with the general ledger control accounts.

2. An aged trial balance of receivables is
periodically prepared and followup action
is taken on overdue balances.

3. There are procedures to control the receipt
of funds for miscellaneous transactions, such as
(a) the sale or rental of property and equipment and
(b) income from investments.

4. There are controls over advances to and
receivables from employees.

PURCHASING, RECEIVING AND ACCOUNTS PAYABLE

The following conditions are indicative of
satisfactory control over purchasing, receiving,
and accounts payable.

1. Prenumbered purchase orders are used for
all items of cost and expense.

2. There are procedures to insure procurement
at competitive prices.

3. Invoices are matched with purchase orders
and receiving reports.

4. When accrual accounting is required, the
organization has adequate controls, such as
checklists for statement-closing procedures,
to insure that open invoices and uninvolved
amounts for goods and services received are
properly accrued or recorded in the books or
controlled through worksheet entries.

5. There is adequate segregation of duties in
that different individuals are responsible for
(a) purchase
(b) receipt of merchandise or services, and
(c) voucher approval.

CASH DISBURSEMENTS

The following conditions are indicative of satisfactory
controls over cash disbursements.

1. Duties are adequately separated, different
persons prepare checks, sign checks, reconcile
bank accounts, and have access to cash receipts.

2. All disbursements are properly supported by
evidence of receipt and approval of the related
goods and services.

3. Blank checks are not signed.

4. Unissued checks are kept in a secure area.

5. Bank accounts are reconciled monthly.

6. Bank accounts and check signers are authorized
by the board of directors or trustees.

7. Petty cash vouchers are written in ink and
are required for each fund disbursement.

8. Petty cash is reimbursed by check and disbursements
are reviewed at that time.

PAYROLL

The following conditions are indicative of satisfactory
controls over payroll.

1. Written authorizations are on file for
all employees, covering rates of pay,
withholdings, and deductions.

2. The organization has written personnel
policies covering job descriptions, hiring
procedures, promotions, and dismissals.

3. Adequate timekeeping procedures, including
the use of timeclocks or attendance sheets
and supervisory review and approval, are
employed for controlling paid time.

4. Other key payroll and personnel duties, such as
timekeeping, salary authorization, and personnel
administration, are adequately separated.

5. Procedures are adequate for controlling
(a) overtime wages,
(b) overtime work authorization, and
(c) supervisory approval of overtime.

PROPERTY AND EQUIPMENT

The following conditions are indicative of satisfactory
control over property and equipment.

1. The organization have established policies
covering capitalization and depreciation.

2. Executive authorization and approvals are
required for originating expenditures for
capital items.

3. There are detailed records showing the asset
values of individual units of property and
equipment.

4. Detailed property records are periodically checked
by physical inventory.

5. Differences between book records and physical
counts are reconciled and the records are
adjusted to reflect shortages.