Case 3.3 United Way of America

Topics: Internal control, Auditing, Internal audit Pages: 6 (1967 words) Published: July 17, 2012
Case 3.3
1. Identify and briefly describe fundamental and cost-effective internal controls that charitable organizations could implement to reduce their exposure to theft losses. Fraud has been on the rise over the past decades, and America’s charitable communities have not been immune to these acts. With the tremendous expanding, charity organizations have controlled a lot of financial and nonfinancial resources. While it is common that many small and medium-size volunteer organizations have lack of continuity of volunteers, short of supervision of volunteers, poor of segregation of duties, absence of internal auditors. Even though the Sarbanes-Oxley Act of 2002 does not mandate an internal audit for nonprofits, Non-profit organizations is under scrutiny & close-watch by regulatory authorities, many different sizes of NPO are start to some risk assess and implement of internal controls over their financial resources to prevent fraud and loss. In the United States, the most widely accepted model for control is The Committee of Sponsoring Organizations of the Tread-way Commission’s (COSO’s) Internal Control- Integrated Framework. COSO broadly defines internal control as a “a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.” COSO frameworks are available to evaluate the effectiveness of internal control in any type of organization. The following internal controls s should be implemented in charity organizations to reduce their exposure to theft issues: 1.Segregation of duties – this is the most effective and costless method of ensure the resource of a charity organization. A key feature of internal financial controls is to ensure that no single individual has sole affection for any single transaction from authorization to completion and review. Thus no single individual should be able to (1) authorize a transition, (2) record the transaction in the financial books, and (3) custody the assets from the financial transaction. It is important where the trustees administer the charity personally, more likely in smaller charities. It is difficult in smaller charities to achieve a full segregation of duties. Trustees or managers should review reports of transactions or control checks independently of the person who normally undertakes the work. Disbursements of large money or investment on big projects must be done with at least two signatures. 2.Budgetary control - One of the most important financial monitoring activities is budgetary control, an assessment of whether the controls are relevant to, and appropriate for, should be implemented. 3.Financial monitoring -- may be undertaken by the use of ratio analysis, and the comparison of performance against financial policies, for example, income reserve levels or investment performance. Financial monitoring will also help ensure more basic controls such as bank and other reconciliations are carried out or that authorization and approval procedures are being complied with. 4.Procedures of dealing with finances such like approval, authorization, and verification --this is the most critical area in charity organization, because most frauds are occurred here. People who relate to financial issues should have bylaws to obey. Annually audits of financial statements should be executed. 5.Documentation – all financial transactions must be put into documentations, and any change in the database must be recorded with explanation. 6.Periodic reconciliations – this control helps ensure the accuracy and completeness of transactions. Reconciliations should be documented and approved by management. 7.Security of assets and records – to minimize the danger of loss or misuse. 2 - 1. Do CPA firms have a...
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