It’s spooky season! While most people are frightened by ghosts and ghouls, accountants are more likely to be afraid of improper internal controls and unreconciled bank accounts. These scary situations may send a shiver up your accountant’s spine, but don’t worry – they’re all easily fixed.
The Puppet Master
It was a dark and stormy afternoon, and the fluorescent lights flickered with every roll of thunder. Dave, the new office manager, was wrapping up his day. Just one thing was left on his list: pay the electric bill.
“Hey, Mary,” Dave called. “Who do I talk to about getting this bill paid?”
“Talk to Jonathan,” Mary responded. “He writes all the checks.”
“But I thought Jonathan signed checks too?”
“He does.”
“Then who approves the expense?”
“Jonathan.”
Dave began to shake with fear. “So…you mean Jonathan has control over everything? He prepares the check, he approves the expense, and he signs the check too?”
“Yes, that’s right,” Mary replied. “He also reconciles our bank account. Isn’t it great? He pulls all the strings, so we call him…the Puppet Master.”
Thunder crashed, and the lights went out. Dave’s horrified scream echoed in in the dark.
“Noooo!!”
All nonprofit organizations – no matter how small – should segregate financial duties. By splitting up each step of the process, this ensures that no single person controls a transaction from beginning to end. The person who prepares the check should be different from the person who signs the check. A second set of eyes is the best prevention against fraud.
The Paper Graveyard
Jane had recently been authorized to use her organization’s credit card for expenses. After purchasing some supplies for an after-school program, she walked over to the accounting office to submit her receipts.
Jane knocked on the door, which slowly creaked open.
“Hello?” Jane called out.
No one responded. Jane peered into the office but could barely see anything around the towering piles of paper stacked on every surface.
Tom, one of Jane’s co-workers, walked down the hall.
“Hi Jane, what are you doing on this end of the building?” Tom asked.
“I’m trying to submit my credit card receipts, but no one seems to be around.”
“Oh yeah,” Tom responded, shaking his head. “I’ve been working here for years and I’ve never seen anyone in this office. Just toss your receipts on the pile.”
“But shouldn’t there be a form to fill out or something?” Jane asked.
“Nah,” Tom said. “I always just dump everything in here. Sometimes my receipts are torn up, or have coffee stains all over them so you can barely read the numbers. Who cares? I figure that if the accountants had a problem with it, they would say something, right?”
“I guess so,” Jane agreed. She crumpled her receipts into a ball and thew it across the office, where it bounced off a stack of papers and fell to the ground.
“Nice shot!” Tom said. “Now let’s go grab some coffee.” The two employees walked off together.
Deep within the office, behind a dusty desk, buried beneath a collapsed tower of paper three feet deep, a small voice groaned and a quivering, bone-white finger pointed slowly towards a cabinet on the wall.
“Forms…on the left.”
The pile shifted, the finger disappeared from sight, and the voice was never heard from again.
Unless your accountant has x-ray vision or mind-reading abilities, they will always appreciate a neatly completed form. Standardized forms help to increase efficiency, prevent delays, and avoid mistakes. To reduce paperwork, your organization may also want to consider paperless platforms, electronic form submission, and automated expense tracking.
The Invisible Menace
Kathy was ready to lead her first meeting of the finance committee. As a new board member, she was excited to learn more about the organization’s financial status.
“Hi everyone, thanks for coming! We really appreciate your time. Before we start digging into these numbers, can anyone tell me when our last independent audit was conducted?”
A silence fell over the room.
“Anyone?”
The finance committee members looked at each other. Then one by one, they all turned their eyes towards a man in the corner.
The man coughed once, then muttered, “We’ve never had an audit.”
Kathy gasped.
“What do you mean? How is that possible?”
The man shrugged his shoulders.
“We’ve never seen any reason for one.”
Kathy felt faint. “But what about transparency? Accountability? Identifying risks? Preventing fraud?”
The man looked questioningly around the room, as each committee member slowly nodded their head in agreement.
“We’ve all decided,” said the man, “if the problems are invisible, they can’t hurt us.”
A wave of dread passed over Kathy as the finance committee members continued to nod. A chant began, quietly at first, then gathering strength:
“Invisible.”
“Invisible.”
“Invisible!”
Kathy screamed and ran from the room, but the chant followed her, echoing in her ears all the way home.
Even if your nonprofit isn’t required to conduct an audit, there are many reasons why you still might want to obtain an independent professional opinion. An auditor will help provide assurance about your financial statements, and can help identify internal risks or areas for improvement. Sharing your audit report increases financial transparency and helps donors feel more comfortable contributing to your organization.