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Blog: Use Outsourced Accountants to Maintain Good Internal Controls

Use Outsourced Accountants to Maintain Good Internal Controls

Smaller to mid-size organizations within the tax-exempt community have to be mindful of their resources, including personnel and monetary. This is especially true during the economic uncertainty that we are experiencing due to the current pandemic.

Because the tax-exempt community relies heavily on donations, grants, and volunteers, the enforcement of strong internal controls has been overcast by other impeding issues.

According to a 2019 dissertation from Liberty University in Virginia, “In a recent study of nonprofit CEOs, Executive Directors, CFOs, and Board members, only 1% viewed fraud by staff as a major issue.” (Caldwell,17)

Unfortunately, fraudulence does occur in public charities and not-for-profits. Vault manager and Certified Public Accountant, David Shuman, agrees that because not-for-profits are so deeply immersed in activating their missions, “internal control is not the first thing on their minds.”

As a firm committed to helping the tax-exempt community fulfill their purposes and promises, Vault influences strong internal control by assessing operational and accounting functions and providing recommendations for how to integrate technology, monitor accurately, and distribute accountability.

We can look at their processes and benchmark them against our experiences with other clients. We can find efficiencies or diagnose areas missing checks and balances.”

There are many reasons why organizations should start putting internal controls at the forefront of thought during the current pandemic, which could include anything from staff working remote to a shortage of volunteers properly trained to perform financial or accounting functions.

As we continue to adapt to our new norm in the COVID-19 era, accounting policies and operational functions too need to potentially be reassessed, modified, and streamlined to maintain ethical and efficient performance and structure. Vault staff upholds the COSO Integrated Framework, so that our partners will be equipped to identify and minimize their vulnerability towards fraudulence or embezzlement.

Here are the top 3 necessary components we structure our work around to minimize our partners’ risks of experiencing detrimental instances of fraudulence or embezzlement:

Control Environment

Our function is to do the accounting and produce a report that we feel is accurate and correct and compliant with GAAP.

This is the ‘tone at the top.’ It is the integrity of the company manifested by the management. This component relies heavily on two variables: being competent in financial and accounting practices and modeling ethical behavior. Having an outsourced accounting partner can minimize the influence of negative pressure to reach certain results at the cost of being incorrect or illegal.

Monitoring

We make sure everyone is looking at the bank activity, their programs, and at their financial activities.”

This is the act of tracking the effectiveness of internal controls and establishing periodic check-ins. Vault can consult your organization on technology solutions that will produce financial statements in real-time and make sure everything is accurate. Similarly, we can draw up financial reports or assist with performance reviews that keep everything and everyone accountable.

Control Activities

You have a team. It is not just one of us. We keep an eye on the bank activities, and if anything looks funny we let management know.”

This requires separating duties, frequently reconciling cash or assets, and implementing authorization procedures. When organizations opt to work with a controller, they may be putting all the duties into the hands of one person. Our firm has a history of selecting innovative tools for organizations that can automate processes in general ledger management, so that no one person holds all the responsibilities. Similarly, our firm adds a built-in review layer, as we have our managers double-check the work of our consultants.

Steadfast in our service. Collaborative in our counsel. Accountable in our actions.

When organizations partner with Vault, they can leverage decades of accounting and executive-level financial services specific to the tax-exempt community. More importantly, organizations can benefit from gaining and maintaining sound internal controls.

It’s a big advantage that we can offer, but a lot of times, clients may engage us for something else; although, internal controls are something we always look at, adds Shuman.

Sources:

Caldwell, Holly Andrea. “Perception of Nonprofit Employees and Board Governance on the Internal Control of Contributions: A Qualitative Study.” Dissertation, Liberty University, 2019. https://digitalcommons.liberty.edu/doctoral/2216

Saylor, Jamie. Internal Controls: A nonprofit’s Achilles Heel. Vault Consulting, 01, Jan. 2020