Internal Financial Controls for Nonprofits: Review a Bank Reconciliation

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1 Friday 22 June 2012 (30 minutes) Community Sector Council Newfoundland and Labrador (CSC) Facilitated by: Darlene Scott, Senior Program Associate, CSC 1

2 Here is some great advice from Blue Avocado Reconciling the bank statement is a crucial step. It's very unlikely that someone is going to steal from you and run away forever. Reconciling the bank statement means that embezzlement can't go on for very long. Ideally someone other than the bookkeeper (or whoever handles the money) reconciles the bank account from an unopened statement. That's a strong check on the person who handles the money. But in a small nonprofit there may not be a bookkeeper, and there may be only one person who does everything. In these instances someone else, such as a board member, should receive the unopened bank statement, and look it over before giving it to the bookkeeper or the sole staff person. Carl Ho, CPA January 6, 2010 at Blue Avocado 2

3 We will cover: What is a Bank Reconciliation? Who does it, and why? What does it look like? What does it have to do with Internal Financial Controls? Best Practices for the board of a nonprofit organization... 3

4 What is a Bank Reconciliation? An internal control on your revenues and expenditures A comparison of your accounting records with the records of your bank One way to check on how much cash is flowing through your organization 4

5 Who does it and why? Usually your bookkeeper, but rightly, a person who can knowledgeably check on the book keeper s work Often the treasurer Occasionally, an auditor, if you have one To look for errors, omissions or fraud 5

6 What does it look like? Example Bank Reconciliation March 31, 2011 Balance per bank statement $ 4, Date Deposits in Transit Amount 3/30 $ /31 $ 1, $ 2, Subtotal $ 7, Cheque Number Outstanding Cheques Amount 1656 $ $ $ $ 1, $ 1, $ 3, Balance per books $ 3, Short, or long, the bank reconciliation is a tally and should balance at the bottom of the sheet Verify balances and explain discrepancies 6

7 Step 1. Balance per Bank Statement on Aug. 31, 2010 $ 3,490 Adjustments: Deposits in transit + 1,450 Outstanding checks 3,221 Bank errors 0 Adjusted/Corrected Balance per Bank $ 1,719 Step 2. Balance per Books on Aug. 31, 2010 $ 967 Adjustments: Bank service charges 35 NSF checks & fees 110 Check printing charges 80 Interest earned + 8 Note Receivable collected by bank Errors in company's Cash account + 9 Adjusted/Corrected Balance per Books $ 1,719 7

8 What does it have to do with Internal Financial Controls? Preparation of bank reconciliation helps in the identification of errors in the accounting records of the company or the bank. Cash is the most vulnerable asset of an entity. Bank reconciliations provide the necessary control mechanism to help protect the valuable resource through uncovering irregularities such as unauthorized bank withdrawals. If the bank balance appearing in the accounting records can be confirmed to be correct by comparing it with the bank statement balance, it provides added comfort that the bank transactions have been recorded correctly in the company records. 8

9 What does it have to do with Internal Financial Controls? Why Hassle With Bank Reconciliation? Without bank reconciliation, you may not have a clear idea of how much cash is available in your account. You might bounce cheques and incur overdraft charges. With electronic cheque clearing, you don t have much time to get funds into your account when you write cheques. Reconciling your account ensures you the opportunity to spot inappropriate cheques, withdrawals or transfers that are unsupported by authorization. 9

10 Best Practices for the board of a nonprofit organization Have accounting procedures which require a monthly bank reconciliation on your account(s). (i.e., do bank recs on a timely basis) Spot check bank recs if you cannot always segregate this job from regular bookkeeping. (i.e., segregate the duties) Do bank recs more often if you are handling large sums of cash, such as proceeds from fundraising events or ticket sales. Keep bank recs on file so you can go back and review earlier ones. Attach source documentation for occasional reviews. 10

11 Thank you to the following sources: American Institute of Certified Public Accountants Blue Avocado Business Owner s Toolkit Charity Village 11

12 Thank You Visit Community Sector Council Newfoundland and Labrador at: Call us toll free at: darlenescott@cscnl.ca A short evaluation follows: only one question - please take a moment to help us improve. Thank you to United Way of Newfoundland and Labrador for the funding which made this possible. 12