FUNADMENTAL CONTROLS FOR SMALL GROUPS
Dan Williams
Society of St. Vincent de Paul Conference, May 2008
Many churches or other nonprofit organizations have small “sub-groups” that act independently on an everyday basis. Also, there are informal groups that rely on volunteer members to handle their funds. Often, the tendency is to let “whoever is willing” to act as the treasurer or handler of the checkbook. And although we hate to “impose” on volunteers, it is vital to have certain checks and balances in place. The very existence of the group may depend on it!
Here are some fundamental controls that must be in place. Our depth of experience at PSK makes us see such controls as essential. And please, don’t hesitate to contact us with questions or for more information.
Opening Bank Account
Normally, one checking account is adequate. However, whether or not you have just one account, all accounts should be opened only by authorization of the group’s leadership. This may seem logical, but it doesn’t hurt to be crystal clear about this. For each account, use the name of the organization on the account and on the face of checks. When opening the account, use the church’s or the organization’s employer identification number (EIN) and not someone’s Social Security number. And keep current the authorized signers card; there’s nothing worse than having a lot of authorized signers on the account who are no longer active in the group!
Check Controls
Once the checking account is established, there are a variety of safeguards that should be followed. Always keep the check stock secure; we recommend that it be kept locked in the office of the church or organization. Most groups do not need to write checks on demand, so there normally is no need for access at a moment’s notice. Always use checks in numerical sequence. Only authorized persons may prepare checks. And it may seem obvious but only authorized persons may sign checks (and no signature stamps, please!). The check preparer should not be check signer. Never write a “blank check” and never write a check to yourself.
Bank Reconciliations
Bank reconciliations are one of the simplest checks and balances to put into place. At PSK, we consider it essential to properly reconcile the checkbook to the monthly bank statement. This should be done as soon as reasonably possible, ideally by someone besides the person preparing the checks and signing the checks. If this is not considered possible, a third party should carefully review the bank reconciliation, examining the group’s bank statement, the checkbook, the reconciliation, and the cancelled checks. We recommend the bookkeeper or accountant for the church or organization.
Bank Reconciliation Steps
So, what really is a bank reconciliation and how is it performed? Many people seem to be unclear about this. Every time a check is written or a deposit is made, that transaction should be recorded in the checkbook, and a new balance should be calculated. Ideally, the balance on the monthly bank statement should agree with the checkbook balance. However, they usually do not agree. That’s because all of the checks written have not yet been cashed as of the bank statement date. Or perhaps a deposit was made after the bank’s month-end cut-off. Often the bank charges a monthly banking fee. Perhaps the checking account earns interest. And sometimes there is an “NSF” charge because we deposited a check from someone who didn’t have enough funds to cover the amount – they had “not sufficient funds” (NSF). All of these things related to the bank statement we are not aware of until we receive that monthly statement. And so, we need to “reconcile” the balance we have in our checkbook to the balance the bank statement shows. Basically, the difference between the bank balance and our checkbook balance is the total of everything one the statement that we didn’t know about and the activity in our checkbook that hadn’t cleared the bank as of their cut-off date. If we add/subtract all of these items, we should be able to “reconcile” the two.
Receipts
How should be handle the funds given to our group? Encourage donations by check, made out to the organization. The receipt of cash always adds a level of risk; even the best of us may be tempted and cash may not make its way into the group’s bank account. However, if there is an event, a fundraiser or a collection in which the group receives cash or multiple donations, more than one person should be involved with the funds at all times (and not just relatives!). Always give a receipt, and use a cash box. When the funds are counted, use a “count sheet;” have more than one counter. Never take funds home (no car trunks either!). Restrictively endorse all checks immediately and make copies of them; prepare a deposit slip and attach a copy of it to count sheet (they must agree with each other!). Make sure the deposit is recorded in the checkbook.
Disbursements
Finally, how should be handle disbursements? A few easy-to-follow rules. Always pay by check, never in cash. Always require an invoice or receipts before you write a check. It’s best to keep on file (in a consistent and orderly filing system) all of this documentation. Never write check to yourself or sign a check for yourself or a family member. And finally, it is best to have authorization before making purchase.
This is a thumbnail sketch of the basic procedures that every group should follow. It protects the funds of the group and the good name of the group and its members. Again, don’t hesitate to contact PSK regarding your group’s accounting needs!