experience perspective // CPAs & ADVISORS CLUB FINANCIAL MANAGEMENT BEST PRACTICES Presented by Rick Wittgren, CPA, partner

OVERVIEW Internal control defined Major transaction cycles Fraud defined Significant risk areas for clubs How to mitigate those risks – Best practices Questions 2 // experience perspective

INTERNAL CONTROLS DEFINED Internal controls defined COSO defines internal controls as, “A process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations” The Business Dictionary definition is, “Systematic measures (such as reviews, checks and balances, methods and procedures) instituted by an organization to (1) conduct its business in an orderly and efficient manner, (2) safeguard its assets and resources, (3) deter and detect errors, fraud and theft, (4) ensure accuracy and completeness of its accounting data, (5) produce reliable and timely financial and management information, and (6) ensure adherence to its policies and plans” 3 // experience perspective

MAJOR TRANSACTION CYCLES COMMON TO CLUBS The most common transaction cycles affecting clubs likely include: Cash disbursements Cash receipts Information technology Entity-level controls (i.e. governance, policies, procedures, etc.) Other transactions cycles: Investing and financing (i.e. fixed assets, debt, investments, etc.) Payroll 4 // experience perspective

FRAUD DEFINED 5 // experience perspective An intentional act of deception Misappropriation of assets Intentional misreporting of financial results Opportunity FRAUD TRIANGLE Financial pressures “They owe it to me” Perceived ability to commit fraud

SIGNIFICANT RISK AREAS FOR CLUBS Cash disbursements How are purchases authorized/approved and by whom? Who signs checks? Who mails/delivers checks? Who records cash disbursements? Who reconciles the bank statement? Who reviews the bank reconciliation? 6 // experience perspective

SIGNIFICANT RISK AREAS FOR CLUBS (CONTINUED) Cash receipts Who receives checks? Are checks restrictively endorsed immediately upon receipt? Who prepares the deposit ticket? Who takes the deposit to the bank? Who records cash receipts? Who reconciles the bank statement? Who reviews the bank reconciliation? 7 // experience perspective

SIGNIFICANT RISK AREAS FOR CLUBS (CONTINUED) Credit cards Credit cards represent a significant risk in most situations What policies are in place to guide use of credit cards? Who has access to credit cards? Who reviews the credit card statements? 8 // experience perspective

HOW TO MITIGATE THOSE RISKS – BEST PRACTICES Segregation of duties Access to assets Recording responsibility Monitoring responsibility If an individual has access to assets, and either recording or monitoring responsibilities, there is a lack of segregation of duties 9 // experience perspective

HOW TO MITIGATE THOSE RISKS – BEST PRACTICES (CONTINUED) Perform and document review of account reconciliations Particularly important for bank reconciliations Consider having the unopened bank statement sent to someone other than the person responsible for reconciliation Review cancelled checks for appropriate signature, payee and amount Check signer(s) should not also be responsible for recording transactions and reconciling the bank account Simply put, don’t allow a single person to handle a cash transaction beginning to end 10 // experience perspective

HOW TO MITIGATE THOSE RISKS – BEST PRACTICES (CONTINUED) Check stock should be safeguarded All disbursements should be approved by an individual other than the person that prepares the payment Ensure timely reconciliation of all accounts (especially bank accounts) Cash receipts should be deposited daily Checks should be restrictively endorsed immediately upon receipt If credit cards are present, strong policies and review are critical 11 // experience perspective

QUESTIONS ? 12 // experience perspective

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