Internal Controls

Accounting and Taxation Compliance for NGOs Pune,30 th April,2010

Safeguarding NGO’s Assets

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It is more sensible to establish a system to deter fraud rather than establish a system to discover it

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Objectives

• • • • • • • Assist the management in orderly & efficient conduct of its operations Adherence to management policies & procedures Safe Guarding of Assets Prevention & Detection of Frauds & Errors Accuracy & Completeness of Accounting Records Timely preparation of Reliable financial information Inspire confidence in the Organisation by Its Funding Partners & Beneficiaries 2

Categories of Internal Control

There are several different categories of internal controls: • • • • • Delegated Authority Separation of Duties Reconciliation Cash Control Physical Control 3

Delegated Authority

• • • • The Board of Trustees delegates authority through the Chief Executive for authorise all transactions.

the day-to-day running of the organisation. In a large and busy organisation it is not practical to expect one person to make all the decisions and The Chief Executive will, therefore, further delegate authority to members of the staff team to relieve the load and to ensure smooth operation during absences of key staff.

Delegated Authority Document .

Every organisation should decide in advance who should do what in finance procedures. It is good practice to record what has been decided in a Delegated Authority document; its purpose is to clarify who has the authority to make decisions, commit expenditure and sign legal undertakings on behalf of the organisation so that there is no confusion about responsibility.

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Finance Related

• • • • • • • • • Segregation of Duties Authorisation Limits Account Opening/Signatories Cash Scroll Cash Insurance Bank Reconciliations Safe Custody of Cheques Periodic Review Confirmation of balances 5

Personnel

• Hiring • Retaining Personnel • Separation or Termination • Payroll • Forms 6

Purchase of Fixed Assets

• • • • • • • • • Budget Requisition Authorisation/Approval Purchase Committee Purchase Order Goods Inward Note Payment Stock/FA Register Insurance 7

Others

• Vehicle Usage • Staff Advance • Telephone • Inward & Outward Register-Courier 8

Risk Assessment

• Identify relevant Internal Controls • Perform tests to ensure they are effective • Document the tests of control 9

Internal Controls

• Managing Internal Risk Here we are concerned with managing internal risks facing an NGO on a day-to-day basis. This is achieved with a series of controls, checks and balances, which, if operated properly, will avoid losses and detect errors and omissions in the accounting records.

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Tips on keeping the Risks Low

DO • • • • • Report the incident to a supervisor or Board member; Investigate incidences, gather the facts; Secure the assets and records; Keep calm; Swiftly act.

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Tips on keeping the Risks Low

DON’T • • • Look the other way; Overlook the ‘fall out’ of a fraud; Withhold information to protect others.

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Monitoring Internal Control Systems

• Findings of Audit & Other Reports showing deficiencies are properly dealt with • Proper action in response to findings of Audits and Other Reports • Complete within a time frame all actions needing correction 13

Limitation Of Internal Controls

• Cannot Change a poor manager into a good one • Ensure Success or even survival • Can Provide only Reasonable but not absolute assurance about achievement of organisational objectives • Collusion by two or more persons 14