Decision-Making Across the Organization The board of trustees of a local church

Question

Decision-Making Across the Organization The board of trustees of a local church is concerned about the internal accounting controls for the offering collections made at weekly services. The trustees ask you to serve on a three-person audit team with the internal auditor of a local college and a CPA who has just joined the church. At a meeting of the audit team and the board of trustees, you learn the following 1. The church's board of trustees has delegated responsibility for the financial management and audit of the financial records to the finance committee. This group prepares the annual budget and approves major disbursements. It is not involved in collections or recordkeeping. No audit has been made in recent years because the same trusted employee has kept church records and served as financial secretary for 15 years. The church does not carry any fidelity insurance 2. The collection at the weekly service is taken by a team of ushers who volunteer to serve one month. The ushers take the collection plates to a basement office at the rear of the church. They hand their plates to the head usher and return to the church service. After all plates have been turned in, the head usher counts the cash received. The head usher then places the cash in the church safe along with a notation of the amount counted. The head usher volunteers to serve for 3 months 3. The next morning, the financial secretary opens the safe and recounts the collection. The secretary withholds $150-$200 in cash, depending on the cash expenditures expected for the week, and deposits the remainder of the collections in the bank. To facilitate the deposit, church members who contribute by check are asked to make their checks payable to "Cash." Each month, the financial secretary reconciles the bank statement and submits a copy of the reconciliation to the board of trustees. The reconciliations have rarely contained any bank errors and have never shown any errors per books. 4. Instructions With the class divided into groups, answer the following. Indicate the weaknesses in internal accounting control over the handling of collections. List the improvements in internal control procedures that you plan to make at the next meeting of the audit team for (1) the ushers, (2) the head usher, (3) the financial secretary, and (4) the finance committee What church policies should be changed to improve internal control?

Explanation / Answer

(a) The primary weakness in internal accounting control with regards to handling of collections starts with the weakness that the church has not undertaken an audit in recent years. An audit should have been done regardless of the trustworthiness of its employees and regardless of their tenure at the church. Secondly the church does not have fidelity insurance and this can possibly lead to a situation in which the church will not be able to negate its loss in case of any occurrence of fraud.

Another weakness in internal control is with regards to passing of the collection plate during mass. This is a weakness as money is not counted at any stage prior to its final place. This provides ample opportunities for theft and fraud in this case.

(b) (1) The ushers – The improvement in the internal control procedure here is that the place at which the ushers meet from the basement to a place that can be monitored in a better manner. An internal control method should be introduced which will require all ushers to count their collection plates and then have it counted by and confirmed by another usher.

(2) The head usher – After the money has been tallied it will once again be tallied and confirmed by the head usher in the presence of the financial secretary.

(3) The financial secretary – The financial secretary will deposit the funds into the safe under the supervision of the head of the church.

(4) The financial committee – The committee will document any deposits or withdrawals of funds that falls outside the scope of the aforementioned scenario. The financial committee should consist of three top members of the church, such as minister, deacon, and financial secretary and they will have to approve and witness any deposits or withdrawals.

(c ) To improve its internal control the church should change its policy of the head usher handling the money every 3 months. The duty and responsibility of counting the money should be kept to a very small number of people. One person should not be allowed to count the money by themselves. The counting should be done by a minimum of two people.

Another change is that the finance department should be the only ones to handle this money and not the ushers. The duty of the ushers should be limited to turn the money in to the finance department.

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