Case 3.3 – United Way of America

Topics: Audit, Auditing, Financial audit Pages: 2 (663 words) Published: July 24, 2012
1. Identify and briefly describe fundamental and cost-effective internal controls that charitable organizations could implement to reduce exposure to theft losses. I am confused by the shear disregard for internal controls at many charitable organizations as described in the United Way case. Cost minimization is a factor for nonprofits, but losing millions of dollars to fraud seems foolish when they could have just spent a fraction of that to put proper internal controls into place. Outlined below are several fundamental internal controls that are also cost-effective, and should be implemented to help prevent misuse of funds. a. Audit Committee - The Board should appoint certain members to an audit committee, or an existing finance committee could also assume the role. Individual members of the board would accept primary responsibility for financial oversight. This is perhaps the least expensive internal control. Smaller charities could attempt to recruit professional from the financial industry, such as local CPA societies, public accounting firms and banks. These financial professionals may be willing to volunteer on the audit committee to increase their visibility within the community. Audit committees for larger nonprofits, such as the United Way, could also appoint an external audit firm to perform periodic audits if financial feasible. b. Segregation of duties – Separate the functions of cash receipt, disbursement, and reporting. No single individual should be responsible for receiving funds, depositing funds, and signing checks. No single individual should also be permitted to request, authorize, and record expenses. Another idea would be to have a separate individual open the mail and review monthly bank statements. c. Organization chart – Create, maintain, and disseminate an organizational chart detailing the responsibilities of all those involved with the organization. This may also help to identify areas where duties should...
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