Internal Controls For Small Governments Panel Discussion NCGFOA Summer Conference Moderated By:

Meet Today’s Panelists Moderator Eddie Burke, CPA Assurance Partner Cherry Bekaert LLP Panelists Charlene Allen Assistant Director of Finance Town of Kill Devil Hills Deanna Barefoot Financial Services Supervisor Harnett County Scott Edwards Finance Director City of Raeford Kim Kenney Finance Officer Town of Knightdale Tina Strickland Financial Services Supervisor Harnett County

Today’s Learning Objectives Why do we have internal controls Importance of segregation of duties Basic internal controls System Implementation

Internal Control Objectives Internal Control Should Have The Following Objectives: Efficient conduct of business Safeguarding assets Preventing and detecting fraud and other unlawful acts Completeness and accuracy of financial records Timely preparation of financial statements

Segregation of Duties

Basic Internal Control Principle AICPA Segregation of Duties (SOD) is a basic building block of sustainable risk management and internal controls Definition Key internal control intended to minimize the occurrence of errors or fraud by ensuring that no employee has the ability to both perpetrate and conceal errors or fraud in the normal course of their duties.

Complicated to Design and Implement Especially for Small Organizations Segregation of Duties Has Cost Associated Limited Resources Must Be a Focal Point For All Staff Evaluation Documentation Communication Alternative Measurement Method This Statement includes an option for the use of a specified alternative measurement method in place of an actuarial valuation for purposes of determining the total OPEB liability for benefits provided through an OPEB plan in which fewer than 100 employees (active and inactive) are provided with OPEB through the plan. The alternative measurement method is an approach that includes the same broad measurement steps as an actuarial valuation (projecting benefit payments, discounting projected benefit payments to a present value, and attributing the present value of projected benefit payments to periods using an actuarial cost method). However, it permits simplification of certain assumptions.

Responsibility Management (management needs to be defined) Department Heads Supervisors Staff Auditors

Primary Duties That Should Be Segregated Some Examples of Incompatible Duties Authorizing a Transaction, Receiving and Maintaining Custody of the Asset That Resulted From the Transaction Receiving Funds (Checks or Cash) and Approving Write-off of Receivables Reconciling Bank Statements/Accounts and Booking Entries to General Ledger Depositing Cash and Reconciling Bank Statements Approving Time Cards and Having Custody of Pay Checks Authorization or Approval Custody of Assets Recording Transactions Reconciliation / Control Activity

Thinking outside the box for small governments When duties cannot be sufficiently segregated due to the small size of a unit, it is important that mitigating controls, such as a detailed supervisory review of the activities, be put in place to reduce risks. Looking to other departments that may have personnel capable of performing or reviewing activities. Asking board members to become involved Looking to business leaders outside the organization or hiring outside resources.

Basic Controls

General controls receipts, vendor payments and payroll Monitor bank accounts on a regular basis Require reconciliations of accounts on a regular basis– cash, receivables, and payables Cross training and rotation of duties Have a vacation policy and enforce it Use of positive pay for checks and ach controls Undistributed checks should be stored locked up

Receipts Proper receipting with use of receipt books if not using a register or cashiering system Checks and balances over deposit preparation Clarity on process for getting deposits to the bank in accordance with daily deposit statute

Vendor Payments Vendor set up by someone other than accounts payable Payment of original invoices not statements only All invoices reviewed and pre-audited Dual signatures or approvals on checks & wires – at least one original Sequentially numbered purchase orders and checks Establish a dollar limit for purchases requiring a purchase order and require multiple approval levels Establish a dollar limit for contracts requiring council approval (including change orders)

Payroll Payroll changes processed by HR but implemented by payroll/Finance Pre-audit of personnel action forms with changes to salary Employees receiving checks should be required to sign for them at least annually Verification of hours worked and approval of overtime hours Verification of manual calculations Match payroll register to supporting documents Written requests for changes to marital status, withholdings, and deductions All banking changes made in person – not mail, phone, or email (example of what happened when we didn’t) Pre-note of ACH for new employees and changes to existing employees, first pay after change is by check

Purchase Cards and Pre-Audit

General Workflow For Purchase Cards Approval process purchase orders transaction approval users supervisor purchasing agent finance officer Process for Pre-audits

Implementation of Internal Controls

Implementation of New Systems Definition of Workflow Paper vs Electronic Workflow Inclusion of all parties involved Accountability Avoid Overload

Timely Preparation of Financial Statements Skill Level of Employees Ability to Write Your Own Financial Statements

Q&A Panel Discussion

Q&A Moderator Panelists Eddie Burke, CPA Assurance Partner Cherry Bekaert LLP Panelists Charlene Allen Assistant Director of Finance Town of Kill Devil Hills Deanna Barefoot Financial Services Supervisor Harnett County Scott Edwards Finance Director City of Raeford Kim Kenney Finance Officer Town of Knightdale Tina Strickland Financial Services Supervisor Harnett County