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2014 Regional Conference Cycle National Internal Audit Committee Training

How to Complete an Audit Quarterly Internal Audit Report (IAR-1) Annual Internal Audit Report (IAR-1). 2014 Regional Conference Cycle National Internal Audit Committee Training. National Internal Audit Committee. CNIACDST@gmail.com hillpamelar@gmail.com cesmith217@gmail.com

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2014 Regional Conference Cycle National Internal Audit Committee Training

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  1. How to Complete an AuditQuarterly Internal Audit Report (IAR-1)Annual Internal Audit Report (IAR-1) 2014 Regional Conference Cycle National Internal Audit Committee Training

  2. National Internal Audit Committee CNIACDST@gmail.com hillpamelar@gmail.com cesmith217@gmail.com ivyanne_london@aol.com gkdailey@deltasigmatheta.org cmitchell@deltasigmatheta.org tjones@deltasigmatheta.org Chair Myrna Phillips, CPA, MBA PMP Alumnae Members Pamela Hill, MAcc, MPA Courtney Smith, CPA, CIA Collegiate Member Ivyanne Kenya London Staff Liaisons Gwendolyn Dailey Crystal Mitchell Terry Jones

  3. Agenda • Purpose of Internal Audit • Constitutional Requirements • Code of Conduct Penalties • Acceptance of Responsibility Form • Purpose of the Internal Audit Committee • Internal Audit Communication • Planning the Internal Audit • Chapter Annual Audit Requirements • Audit Sample, Procedures & Testing • Audit Communication • IAR-1 Quarterly and Annual Form Input • Questions?

  4. Why Perform A Quarterly Audit?

  5. Purpose of an Internal Audit An internal audit is the mechanism by which a chapter assesses the level of compliance to chapter policies and procedures andinternal controls • The better the control environment, the less likely unexpected events are to adversely affect an entity's ability to execute on its strategies and achieve its objectives. Performing quarterly internal audits helps prevent: • Theft • Fraud • Embezzlement

  6. Purpose of an Internal Audit An Internal Audit: • Increases accountability • Improves: • - ethical and professional practices • - the quality of output and supports decision-making and performance tracking • Can be used : • - to examine and evaluate activities • - as a service to the institution promoting effective control at a reasonable cost • Helps organizations achieve their stated objectives

  7. Purpose of an Internal Audit The misappropriation of funds is due primarily to fiscal officers not performing their duties and responsibilities All chapters should have fiscal policies and procedures in place that define its internal controls for safeguarding chapter assets. The audit assesses whether fiscal officers are performing their duties according to the written policies. The audit also helps highlight potential problems that may result in future financial losses if not corrected.

  8. Constitutional Requirements Audit of Chapter Accounts Constitution and By-Laws Article X; Section 12.B The books of a chapter shall be audited by a certified public accountant or an audit committee within 30 days of the close of the fiscal year. A copy shall be submitted to National Headquarters by August 31. • NOTE:Failure to submit the Internal Audit Report (IAR-1) and/ or a copy of the external audit to National Headquarters by August 31st is a violation of the Constitution and By-Laws and may be subject to sanctions and fines as stated in Section 5 C of the Code of Conduct.

  9. Code of Conduct Penalties Failure to submit the Internal Audit Report(IAR-1) and/ or a copy of the external audit to National Headquarters by August 31st is a violation of the Constitution and Bylaws and may be subject to sanctions and fines as stated in Section 5 C of the Code of Conduct. Failure to submit Annual Audit Report (IAR-1 Form): • By the required deadline (August 31st) Fine $200 • 30-90 days after the required deadline Fine $300 • More than 90 after the required deadline Suspension for 6 Months or Fine $500

  10. Acceptance of Responsibility Form New Requirement for Chapter Internal Audit Chairs Purpose: To ensure Chair, Internal Audit Committee clearly understands, acknowledges, and accepts her responsibilities • Conduct quarterly audits and the annual audit according to the due dates established by the National Internal Audit Committee • File the IAR-1’s and the Annual IAR-1 in the Red Zone according to the due dates established by the National Internal Audit Committee • Discuss the draft recommendations and findings on a quarterly basis with the Fiscal officers • Report the findings and recommendations of the audits to the Executive Board and then to the chapter on a quarterly basis Due: August 31st of each fiscal year

  11. Acceptance of Responsibility Form • National Website • Print and complete the form • Make a copy for the chapters records • Mail the original form to: Delta Sigma Theta Attention: Director of Finance 1707 New Hampshire Avenue, NW Washington, DC 20009

  12. Purpose of the Internal Audit Committee

  13. Purpose of the Internal Audit Committee The committee’s purpose includes: • Recommending for chapter approval an independent auditor to conduct the annual review/audit (if applicable) • Reviewing and proposing internal controls • Performing the chapter’s quarterly internal audits • Reporting audit findings and recommendations to the chapter • Submitting the IAR-1 Form for each quarteronline • Submitting the Annual IAR-1 Form onlineby August 31st

  14. Selection of the Internal Audit Committee

  15. Who should be on the Internal Audit Committee? • Target sorors who have financial or audit backgrounds • Sorors who know about the chapter’s finances, but who are not the current fiscal officers • A designated external person can be selected to perform the audit if the chapter’s size does not permit the establishment of an internal audit team

  16. Who should not be on the committee? • Current Fiscal Officers President, Treasurer, Financial Secretary, Assistant Treasurer, Assistant Financial Secretary • Members of the Budget/Finance Committee • Chapter Advisors • NOTE: While not ideal, Immediate Past Financial officers may serve as long as they do not audit or review transactions which they initiated or were privy to.

  17. Internal Audit Communication

  18. Internal Audit Communication Every successful audit is based on: • Sound planning • An atmosphere of constructive involvement • Effective communication

  19. Internal Audit Communication The Internal Audit Committee and the Chapter Fiscal Officers should work together to complete the internal audits by: • developing a process (how it will be done), and • agreeing to a timeframe (when it will be done) • Chapters should know that the Internal Audit Committee: • has an active interest in ensuring internal controls are in place and effective and, • wants to ensure that the established policies and procedures are being followed.

  20. Internal Audit Communication The culmination of the internal audit is the audit report. The audit report should be designed to assist chapter leadership in measuring its own performance - particularly with respect to the reliability and soundness of established internal controls. The Internal Audit Committee should report any audit findings and recommendations to the chapter after each audit. The results of the internal audit are confidential and should only be discussed through the formal communications mechanisms set forth in the chapter’s policies and procedures.

  21. Planning the Internal Audit

  22. Planning the Internal AuditKey Audit Reporting Dates Annual Reports Report RED ZONE Due Date • Annual Internal Audit Report (IAR-1) August 31st • External Review / External Audit August 31st Quarterly Reports Report RED ZONE Due Date • Quarter 1 (July 1 to September 30) December 1st • Quarter 2 (October 1 to December 31) March 1st • Quarter 3 (January 1 to March 31) June 1st • Quarter 4 (April 1 to June 30) August 1st All reports must be filed using the on-line system in the Red Zone.

  23. Planning the Internal Audit Scheduling the Quarterly Audits The chapter’s financial records shall be audited quarterly, based on the sorority’s fiscal year (July 1 – June 30). The audit will begin two weeks after the end of the quarter. The schedule for the fiscal year audits is as follows:

  24. Audit Requirement Audit Levels

  25. AUDIT SAMPLE, PROCEDURES & TESTING

  26. Sample Selection Statistical Sampling vs. Nonstatistical Sampling When examining less than 100% of the transactions, a sample needs to be selected. It is preferable to use a statistical sampling method. Statistical Sampling – 1. Random sampling 2. Systematic sampling Nonstatistical Sampling – 1. Haphazard sampling 2. Judgmental sampling

  27. Receipts Receipts represent the total funds collected from dues, conferences, fundraising, etc. Objectives • Ensure that all cash/check receipts are deposited timely (within 2 business days of receipt). • Confirm that the receipts are recorded accurately . NOTE: Receipts do not include the movement/transfer of monies between chapter accounts (example transfers from Operating to Fundraising).

  28. Validating Receipts Compare the Financial Secretary’s Logs to the Bank Statement Deposits Compare the Financial Secretary’s Logs to the Treasurer’s Reports Compare Receipt Books to the Bank Deposit slips Verify Member Dues to the Member Log NOTE: For the Annual IAR-1, compare the total gross receipts with the Annual Financial Report (Form 990). If these amounts are different, the Annual IAR-1 form WILL NOT BE ACCEPTED.

  29. Validating Receipts

  30. Validating Receipts

  31. Disbursements Disbursements represent the total checks and non check payments (wire transfers, etc.) issued. Objectives • Ensure that all disbursements are recorded timely • Disbursements are properly supported and approved • Disbursements are recorded accurately

  32. Member Dues Verification

  33. Disbursements Verification Obtain the Cash Disbursements Register for the audit period to verify gross expenses: • Verify that all check numbers are accounted for • Ensure that all checks issued are recorded • Obtain an explanation for checks issued out of sequence • Compare the total expenditures recorded • Compare the total calculated expenses with the Annual Finance Report (Form 990) cash disbursements and explain any differences • Verify unused check stock

  34. Disbursements Verification Verify Disbursements • Select 25% of the total checks issued (but not more than 15 per quarter) and perform the following tests: • Examine supporting documentation for the disbursement • Compare the completed voucher with the budget line item amount • Verify that the disbursement was approved • Compare the details with the Disbursements register. • Compare the disbursement to the check copies or images • Verify that the check payee is not the check signer or the approver • Verify documentation and authorization for disbursements made using merchant accounts or secure online payment systems such as PayPal

  35. Check Made Check Voucher Dual Date Check# Payable To: Amount Exists Signatures Separation Documentation Comments Yes No Yes No Yes No Yes No 2184 VOIDED $ - 1 Karen Soror $ (29.19) 2203 2 Delta Sigma Theta 2276 3 $(160.00) 2309 $(282.23) Teresa Soror 4 2424 Cash Payable to cash 5 $ (30.00) 2481 Hotel California $(275.50) 6 Validating Disbursements NOTE: Select a statistical sample of 25% of disbursements but no more than 15 per quarter. * This is the “Disbursements” tab from the IAR-1 form.

  36. Disbursements Verification Other Disbursements – Non-check disbursements consist of wire transfers, EFTs, cashier’s checks and online payment systems such as PayPal. • Verify that documentation exists to support 100% of non-check disbursements. • Ensure that proper approvals exist to support the issuance of the non-check disbursements.

  37. Month on Voucher Date Amount Finance Report exists Comments 9/10/10 $ 875.00 September Yes Wire Transfer 11/23/10 $ 66.63 November No Check Re-Order 12/13/10 $ 375.00 January Yes Vendor Payment 1/05/11 $ 800.00 January Yes Wire Transfer 2/08/11 $ 770.00 February Yes Wire Transfer Wire Transfer 3/15/11 $ 4,400.00 March Yes Verify Non-Check Disbursements

  38. Verify Voided Checks • Examine the checks • Observe that the reason for voiding is documented and the check is cancelled • Verify that the voided check does not appear on the bank statement

  39. Verify Voided Checks

  40. Bank Balances The bank balances represent the amount of cash available in the chapter’s bank accounts. Objectives • Ensure the chapter bank balances are accurate • Ensure the chapter discloses all bank accounts and balances • Ensure the bank account reconciliations are performed timely

  41. Bank Reconciliation

  42. Audit Communication

  43. Audit Communication Summary Report • Summary Audit reports have three major objectives: • Inform • Persuade • Obtain results • The Summary Audit report should contain: • Heading, including chapter name, period, and type of report • A high level overview of the scope including the period under review • A summary of the findings, and • An opinion of the overall state of the records

  44. Audit Communication Detailed Audit Report • The Detailed Audit reportcontains the comprehensive results of the audit testing which supports the information in the Summary Audit report. • Ensure that the report: • Is clear, concise, and free of unnecessary detail • Is consistent in any conclusions expressed • Summarizes operating policies and procedures referenced • Is easily understood, presented logically, and is to the point • Is constructive and balanced throughout • Use graphics or attachments, as appropriate, which help to convey points or provide additional information

  45. Draft Audit Report Recommendations • List recommendations and relate back to findings • Refer to Delta reference documents as necessary (Constitution & By-Laws, Chapter Management Handbook, Finance Workshop Manual, Chapter Policies and Procedures, etc.)

  46. IAR-1 Quarterly Form Input • The IAR-1 Form should be input by the chapter’s currentInternal Audit Chair. When all input is complete the current Internal Audit Chair will electronically sign the form. • The current chapter president reviews the data input by the current Internal Audit Chair and then electronically signs the form.

  47. IAR-1 Quarterly Form Input Log into The Red Zone – www.DeltaSigmaTheta.org • Go to the Members Area • Click the The Red Zone • radial button • Click Submit

  48. IAR-1 Quarterly Form Input Log into The Red Zone – www.DeltaSigmaTheta.org • Go to the Members Area • Click the The Red Zone radial button • Click Submit

  49. IAR-1 Quarterly Form Input Log into the Red Zone

  50. IAR-1 Quarterly Form Input

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