Protecting Fixed Assets: Internal Controls for Non Profits 25 September 2012 Community Sector Council Newfoundland and Labrador (CSC) Darlene Scott, Senior Program Associate darlenescott@cscnl.ca www.communitysector.nl.ca 1
A successful system of internal control is not built overnight, but is an ongoing process of fine tuning the inner workings of an organization. Kendra James, Demand Media @ chron.com Best Advice on setting up internal controls: Be patient Be thorough Be vigilant 2
This is why you practice internal controls to: Protect your Assets Be Efficient in Operations Comply with reporting and legislation requirements 3
Here are the five components of an internal control system: Tone at the Top (a culture of controls) Authorization (clear lines of authority outlined in policy) Recording (timely and accurate accounting) Reconciling (tally up by separate persons and compare) Monitoring (sometimes called early detection ) 4
Asset Life Cycle Plan for Acquisition Acquire Plan for Acquisition Acquire Deploy Retire and Replace Deploy Manage Usage Manage Retire and Replace 5
So, let s revisit the internal control framework (the five components) within each stage of the asset life cycle. Plan for acquisition (Stage One) This is your opportunity to establish a tone at the top : Budget Policies Depreciation Consider Training Issues 6
Acquire Assets (Stage Two) This is the life cycle stage in which you establish the authorization process and apply its principles Clarify in by-laws Support with Policies Clarify Board and Staff roles Follow procurement procedures Develop and Use a purchasing manual 7
Deploy (Stage Three of the Asset Life Cycle) This is where you Record and Account for assets. Record Acquisitions Assign Usage Limits Secure Assets Physically Electronically 8
Manage Assets (Stage Four in the Life Cycle) This is where you Reconcile Cross Check your Systems Reconcile access with Authorization Review Activities What is reconciliation? Broadly defined, reconciliation is a comparison of different sets of data in order to ensure the accuracy and completeness of transactions. Integral parts of the reconciliation process include identifying and investigating differences, and taking corrective action, when necessary, to resolve differences. University of Missouri Business Policy and Procedure Manual (2008) 9
Retire and Replace (Stage Five in the Life Cycle) This is where you Monitor and Detect to see if the Internal Controls process is working for your organization. Audit Inventory Compensating Controls Corrective Action 10
Thank you to the following sources: American Institute of Certified Public Accountants (AICPA) Charity Village Committee of Sponsoring Organizations of the Treadway Commission (COSO) Center for Nonprofit Risk Management IBM Plantservices.com Wikipedia: the free encyclopedia Special Note: the field of Internal Controls is under constant change to keep up to date, search wikipedia for COSO Treadway and review some of the sources listed in the current entry on: The Committee of Sponsoring Organizations of the Treadway Commission (COSO) is a voluntary private-sector organization, established in the United States, dedicated to providing thought leadership to executive management and governance entities on critical aspects of organizational governance, business ethics, internal control, enterprise risk management, fraud, and financial reporting. 11
Thank You Visit Community Sector Council Newfoundland and Labrador at: www.communitysector.nl.ca Call us toll free at: 1 866 753 9860 darlenescott@cscnl.ca Thank you to United Way of Newfoundland and Labrador for the funding which made this possible. 12