1. Financial, Funding, and More Fun
Financial Policies/Internal Controls

2. Financial Policies Pages 3 - 7

3. Financial Policies Framework for the operation of utility
Must be pertinent to the specific utility
Must comply with:
State Law
Local Ordinances
Your system bylaws or charter
Loan Covenants

4. Financial Responsibilities
Plan for System’s Financial Future/Sustainability
Prepare/Adopt Annual Budgets
Monitor Financial Performance
Insure accountability/integrity of financial systems

5. How is Fraud Discovered?

6. What is Internal Control?
Plan of the organization, methods and procedures, put in place by management to provide reasonable assurance regarding the achievement of its objectives

7. Why is Internal Control important
Improve accountability to stakeholders
Help achieve performance and budget targets
Improve reliability of financial reporting
Establish clear policies and procedures for completion of tasks

8. Why is Internal Control important
Ensure compliance with laws and regulations
Prevent loss of resources and public assets
Preserve public trust

9. Elements of Internal Control
Control Environment
Risk Assessment
Control Activities
Information & Communication Systems
Monitoring

10. What Control Elements Would Apply?
First: Is there a problem with this? Utility gets a good deal on cell phones if they order 6 cell phones. They only need 5 so General Manager takes one home for his daughter to use.

11. What Control Elements Would Apply?
First: Is there a problem with this? Due to lack of sufficient revenue, governing board votes to discontinue employee retirement fund. The bookkeeper and staff are advised and the utility stops paying the provider.

12. What Control Elements Would Apply?
First: Is there a problem with this? A detailed budget for the upcoming fiscal year is developed. The governing body approves it. The budget is filed for reference when the next year’s budget is prepared.

13. What Control Elements Would Apply?
First: Is there a problem with this? The bookkeeper enters new vendors in the accounting software, opens mail, enters vendor invoices, cuts checks and mails payments.

14. What Control Elements Would Apply?
First: Is there a problem with this? The utility management and bookkeeper document accounting procedures. The procedures are filed in a binder. They will be used for SOPs in case a new bookkeeper is someday hired.

15. Control Activities Segregation of duties Physical controls
Performance Reviews
Information Processing Controls

16. How could this have been prevented?
The operator is building a new bathroom in his personal residence. He or she orders materials through the utility where he/she works. They are paid by the utility as equipment repairs and maintenance.

17. How could this have been prevented?
One of the maintenance staff routinely takes a two hour lunch and leaves work an hour early. The payroll clerk does not know this and cuts his paychecks for the full amount he was supposed to have worked, costing the utility thousands of dollars annually.

18. How could this have been prevented?
The billing clerk receives cash payments for the water bill. The cash was put in the clerk’s pocket and a credit was issued to the customer’s account for the amount of cash taken by the clerk.

19. How could this have been prevented?
The bookkeeper enters time records for payroll, calculates payroll and issues the payroll checks. He/she feels that he/she is not adequately paid for the hard work he/she does so he/she adds $500 per month to his/her pay.

20. How could this have been prevented?
The bookkeeper opens a personal bank account under the name, “Valley Chemicals”. He/she then creates a “phantom” vendor account in the utility books. Every month he/she mails an invoice to the utility, writes a check for the invoice and deposits the check in the personal account opened under this name.

21. How could this have been prevented?
The payroll clerk does not withhold payroll taxes from his/her paycheck. When he/she completes the quarterly payroll tax report, the appropriate taxes are shown as paid and the utility pays the taxes that should have been withheld.

22. Difficulties in Implementing Internal Controls in Small Systems
Limited Staff
Significant number of cash transactions
Complex accounting rules
Regulatory focus
Less resources to support accounting function

23. Steps to Help Utilities Improve Internal Controls
Start where you are!
Make a commitment
Assess risks
Document procedures and controls
Communicate with staff & train
Continually monitor, evaluate and update

24. How can internal controls be implemented in a very small utility?
Question to the Group
How can internal controls be implemented in a very small utility?

25. Steps to Improve Internal Controls
Push Up Internal Controls Push Down

26. Other Ways to Protect the Utility
Hire competent staff
Pay staff adequately
Establish, document, follow accounting policies
Insure
Encourage vacation – Have backups trained

27. When Problems Happen Encourage the utility to:
Have a plan and make sure everyone knows that they do!
Act quickly and fairly
Document everything
Use outsiders to investigate
Find out where the system broke down

28. Questions/Comments?