Diocese of Pueblo Accounting Policies and Procedures Manual. Chapter 19 Financial Management and Internal Controls

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1 Financial Management and Internal Control Contents Control Environment A Segregation of Duties Sample Grids B Internal Control Questionnaire C Norms and Procedures for Parish Finance Councils D

2 A. Control Environment - The control environment sets the tone for the parish, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. Risk management is the parish s identification and analysis of relevant risks to achievement of its objectives, forming a basis for determining how the risks should be managed. B. Segregation of Duties - The following duties grids list procedures that are grouped on the form into Access, Recording, and Monitoring categories. To preserve segregation of duties, an employee should not normally ~ have duties in all three categories. For example, an employee should not perform a procedure and approve the same procedure. Since many of the parishes have limited personnel to perform the accounting functions the following grids outline the division of responsibilities when only two personnel are present and also when three or more personnel are present. 19-A

3 ASSIGNMENT OF DUTIES GRID 1. Purchases, Cash Disbursements, and Accounts Payable Duties Grid The following grid will show the appropriate segregation of duties for parishes with three accounting personnel in dealing with purchases, cash disbursements, and accounts payable. Pastor/Parish Director/Administrator Accountant/Bookeeper Clerical (Finance Council Member) ACCESS - ABILITY TO: Open bank statements & review contents prior to reconciliation Issue a purchase order Make a computer entry to generate a purchase document Authorize a purchase document Issue a check Make a computer entry to generate a payment (either check or electronic funds transfer) Authorize a payment by check or electronic funds transfer Sign Checks Access mechanical signature plate Access signed checks to be issued to vendors (mailing) Review reconciliation compared to the general ledger RECORDING - ABILITY TO: Record accounts payable Record checks issued Record electronic funds transfers (if applicable) Change on-line files for: Accounts payable entries Checks paid Electronic funds transfer (if applicable) Change computer master files affecting: Accounts payable vendors Electronic funds transfers (if applicable) Make journal entries to: Adjust Inventory or Expense general ledger accounts Adjust the Cash general ledger account MONITORING (Responsibility to reconcile) Bank balances to general ledger/control account Accounts payable to general ledger/control account 19-B

4 ASSIGNMENT OF DUTIES GRID 2. Purchases, Cash Disbursements, and Accounts Payable Duties Grid The following grid will show the appropriate segregation of duties for parishes with three accounting personnel in dealing with purchases, cash disbursements, and accounts payable. Pastor/Parish Director Business Manager Accountant/Bookkeeper Clerical ACCESS - ABILITY TO: Open bank statements & review contents prior to reconciliation Issue a purchase order Make a computer entry to generate a purchase document Authorize a purchase document Issue a check Make a computer entry to generate a payment (either check or electronic funds transfer) Authorize a payment by check or electronic funds transfer Sign Checks Access mechanical signature plate Access signed checks to be issued to vendors (mailing) Review reconciliation compared to the general ledger RECORDING - ABILITY TO: Record accounts payable Record checks issued Record electronic funds transfers (if applicable) Change on-line files for: Accounts payable entries Checks paid Electronic funds transfer (if applicable) Change computer master files affecting: Accounts payable vendors Electronic funds transfers (if applicable) Make journal entries to: Adjust Inventory or Expense general ledger accounts Adjust the Cash general ledger account MONITORING (Responsibility to reconcile) Bank balances to general ledger/control account Accounts payable to general ledger/control account 19-B

5 ASSIGNMENT OF DUTIES GRID 3. Cash Receipts and Accounts Receivable Duties Grid The following grid will show the appropriate segregation of duties for parishes with two accounting personnel in dealing cash receipts and accounts receivable. Pastor/Parish Director Accountant/Bookkeeper Volunteer Counter #1 Volunteer Counter #2 Volunteer Development Staff ACCESS - ABILITY TO: Open bank statements & review contents prior to reconciliation Review a billing document prepared by others Receive payments in currency or checks (dual control) Be custodian of currency or checks (dual control) Review reconciliation compared to the generl ledger Approve a credit memo for issuance RECORDING - ABILITY TO: Prepare a billing document (Applicable only to Pledge Receivables and School Tuition) Make a computer entry to generate a billing document (Applicable only to Pledge Receivables and School Tuition) Prepare a credit memo Make a computer entry to generate a credit memo Posting to the accounting system Change the on-line billing or credit memo file Change master files affecting billings and credit memos Prepare the cash receipt journal/list of receipts Make a computer entry to credit donor/parishioners accounts for payments received Make a journal entry to: Adjust the Accounts Receivable general ledger account Adjust the Cash general ledger account Record bad debts write-offs MONITORING (Responsibility to reconcile) Accounting software records to Accounting records (if applicable) Cash receipts journal (list) to bank deposit records Donor/Parishioner balances to general ledger/control account (Applicable only to Pledge Receivables and School Tuition) Bank balances to general ledger/control account Responsibility to issue monthly statements to donors (Applicable only to Pledge Receivables and School Tuition) 19-B

6 ASSIGNMENT OF DUTIES GRID 4. Cash Receipts and Accounts Receivable Duties Grid The following grid will show the appropriate segregation of duties for parishes with three accounting personnel in dealing cash receipts and accounts receivable. Pastor/Parish Director Business Manager Accountant/Bookkeeper Volunteer Counter #1 Volunteer Counter #2 Volunteer Development Staff ACCESS - ABILITY TO: Open bank statements & review contents prior to reconciliation Review a billing document prepared by others Receive payments in currency or checks (dual control) Be custodian of currency or checks (dual control) Review reconciliation compared to the generl ledger Approve a credit memo for issuance RECORDING - ABILITY TO: Prepare a billing document (Applicable only to Pledge Receivables and School Tuition) Make a computer entry to generate a billing document (Applicable only to Pledge Receivables and School Tuition) Prepare a credit memo Make a computer entry to generate a credit memo Posting to the accounting system Change the on-line billing or credit memo file Change master files affecting billings and credit memos Prepare the cash receipt journal/list of receipts Make a computer entry to credit donor/parishioners accounts for payments received Make a journal entry to: Adjust the Accounts Receivable general ledger account Adjust the Cash general ledger account Record bad debts write-offs MONITORING (Responsibility to reconcile) Accounting software records to Accounting records (if applicable) Cash receipts journal (list) to bank deposit records Donor/Parishioner balances to general ledger/control account (Applicable only to Pledge Receivables and School Tuition) Bank balances to general ledger/control account Responsibility to issue monthly statements to donors (Applicable only to Pledge Receivables and School Tuition) 19-B

7 ASSIGNMENT OF DUTIES GRID 5. Payroll Duties Grid The following grid will show the appropriate segregation of duties for parishes with three accounting personnel in dealing with payroll. Pastor/Parish Director Accountant/Bookeeper Clerical (Finance Council Member) ACCESS - ABILITY TO: Open bank statements & review contents prior to reconciliation Issue a payment authority document (time card) Make a computer entry to generate a payroll payment Add an employee to salary payroll master file Authorize a payroll payment prepared by others Review changes on-line payroll entries Issue a payroll check Sign checks and place in sealed envelope Access mechanical signature plates Access signed checks to be issued Review bank reconciliation Review and approve payroll ACH report prior to payment RECORDING - ABILITY TO: Record hourly payroll Record payroll checks issued Record electronic funds transfers (if applicable) Change on-line files for: Payroll entries Checks paid Electronic funds transfer (if applicable) Change computer master files affecting: Employee payroll information Electronic funds transfers Make journal entries to: Adjust Expense general ledger accounts Adjust the Payroll Cash general ledger account MONITORING (Responsibility to reconcile) Bank balances to general ledger/control account Employee payroll records to control accounts 19-B

8 ASSIGNMENT OF DUTIES GRID 6. Payroll Duties Grid The following grid will show the appropriate segregation of duties for parishes with three accounting personnel in dealing with payroll. Pastor/Parish Director Business Manager Accountant/Bookeeper Clerical (Finance Council Member) ACCESS - ABILITY TO: Open bank statements & review contents prior to reconciliation Issue a payment authority document (time card) Make a computer entry to generate a payroll payment Add an employee to salary payroll master file Authorize a payroll payment prepared by others Review changes on-line payroll entries Issue a payroll check Sign checks Access mechanical signature plates Access signed checks to be issued Review bank reconciliation Review and approve payroll ACH report prior to payment RECORDING - ABILITY TO: Record hourly payroll Record payroll checks issued Record electronic funds transfers (if applicable) Change on-line files for: Payroll entries Checks paid Electronic funds transfer (if applicable) Change computer master files affecting: Employee payroll information Electronic funds transfers Make journal entries to: Adjust Expense general ledger accounts Adjust the Payroll Cash general ledger account MONITORING (Responsibility to reconcile) Bank balances to general ledger/control account Employee payroll records to control accounts 19-B

9 INTERNAL CONTROL SELF REVIEW I. GENERAL CONTROLS Question Yes No N/A 1. The parish/school performs a monthly reconciliation of all bank accounts. 2. The parish/school performs a monthly reconciliation/review of its payroll withholding/tax reports. 3. Un-reconciled financial transactions are researched and corrected in a reasonable period of time. 4. The number and scope of authorized signers is reasonable. 5. Spending appears to be within budget for the periods tested. 6. A policy and procedures manual has been created, maintained, and made available to parish/school staff, including the Diocesan Accounting Procedures Manual. 7. All year-end close procedures and/or deadlines are followed. 8. Budget objectives have been established and are monitored on a monthly basis. 9. Risk or obstacles to achieving those objectives have been identified. 10. The overall effectiveness of the internal control system is routinely evaluated. II. CASH CONTROLS Question Yes No N/A 1. Petty cash funds are necessary and have procedures for control and reconciliation on a monthly basis. (Petty cash should not exceed $ ) 2. The Parish does not have unauthorized bank accounts or charge accounts. 3. Cash deposits are sufficiently documented. 4. The parish/school revenue-producing activities have established accounting procedures for compliance with IRS and tax regulations. 5. Employees responsible for cash handling and deposit preparation are familiar with applicable policies. (Separation of duties, etc.) 6. Deposits are made on a regular basis (i.e., in a timely manner). 7. Monies received and not yet deposited, are held in a secure manner (e.g. a safe with limited access) until deposited. III. EPENDITURES Question Yes No N/A 1. Check requests, including personal reimbursements, are properly authorized, sufficiently documented, and for appropriate parish/school purposes. 2. Invoices for purchases and commitments over $ are approved by the Pastor/Finance Council/Parish Council and require two signatures. 3. Purchases of $5, or more are approved by the Pastor, Parish Finance Council, and the Bishop. 4. Purchases of $10, or more are approved by the Pastor, Parish Finance Council, Bishop, and Diocesan Finance Council. 5. Purchases are properly authorized, sufficiently documented, and are appropriate for parish/school purposes. 6. Credit cards use, if applicable, are adequately controlled and transactions are properly reviewed and sufficiently documented, for appropriate parish/school purposes, and accounted for correctly in the financial system. Documents are retained per parish policy. 19-C

10 INTERNAL CONTROL SELF REVIEW IV. PERSONNEL, EPENDITURES AND TRAVEL Question Yes No N/A 1. Timesheets are properly authorized and agree with payroll records. 2. The accounting office tracks and maintains adequate records of employees' vacation time, sick leave, and FMLA. 3. Independent Contractor (consultant) payments are properly classified and adequately documented. (W- 9 s completed/1099 s distributed) Are copies of contractor Certificates of Liability Insurance (where applicable) on file? 4. Monthly telephone statements including cellular phone bills are reviewed for accuracy and personal calls. 5. Staff understands the church s policy on personal telephone calls. 6. Travel/business expense reports are properly authorized and documented. Expenses comply with parish policy. 7. Personnel do not make personal purchases through parish/school accounts. 8. Personnel are aware of the parish policy on conflicts of interest. 9. The Pastor/Parish Administrator notifies Accounting/Payroll of terminated employee and immediately terminates all computer access privileges and signature authority. Direct deposits are reviewed to avoid over payments if applicable. 10. New employees are I-9'd and have completed paperwork requested by the Accounting/Payroll office in a timely basis. 11. Staff morale is positive, employees seem competent, and allocation of duties within the office promotes the efficient use of resources. 12. Job descriptions are accurate and up-to-date. Major expectations are included in the job description. 13. Staff payroll changes are documented. V. EQUIPMENT AND COMPUTER SECURITY Question Yes No N/A 1. Inventory items listed on the parish/school property list are easy to locate, properly tagged, and in good condition. 2. Employees are familiar with the parish/school Software/Computer use policy. 3. The parish/school can establish its ownership of all software installed on parish/school computers. (i.e. site license) 4. Physical security of personal computers, terminals and workstations is adequate and complies with parish/school policy. 5. Password security over computer systems access is adequate. 6. Backup and recovery procedures for personal computers and LAN appear adequate. 7. Data security precautions for sensitive administrative data on personal computers appear adequate. (i.e. password protected/access controlled) Review Date: Review Completed By: 19-C

11 Parish Chapter 19-Financial Management and Internal Control NORMS AND PROCEDURES FOR PARISH FINANCE COUNCILS IN THE DIOCESE OF PUEBLO The complexity of the modern Parish has led the Church to mandate Parish Finance Councils to assist pastors/parish directors/administrators in their administrative responsibilities (cf. canon 537). The pervasive principles, which guide the functioning of Parish Finance Councils, are shared responsibility, subsidiarity, and consultation. In addition, Christian stewardship of the goods entrusted to the Church must guide the actions of the Parish Finance Council. Through these principles pastor/parish director/administrator might accomplish the most responsible stewardship of resources given for carrying out the work of the Church in the Parish and beyond. In order to assist pastors/parish directors/administrators the following norms will govern the functioning of all Parish Finance Councils within the Diocese of Pueblo: 1. The pastor/parish director/administrator represents the Parish in all juridical matters (cf. canon 532), and is responsible to the Bishop for the total operation of the Parish. According to the law of the Church, the Parish Finance Council assists the pastor/parish director/administrator in a consultative capacity. The importance of the consultative role of the Parish Finance Council is found in the particular expertise the members bring to the area of responsible stewardship of material goods available to further the mission of the Church in and beyond the Parish. 2. The Parish Finance Council assists the pastor/parish director/administrator in evaluating and formulating the parish s/school's needs for present and long-range financial support. It is essential that the pastor/parish director/administrator and the members of the Parish Finance Council be aware of their stewardship responsibilities in light of the Gospel, the teachings of the Catholic Church, and the Code of Canon Law. 3. Members of the Parish Finance Council are to be appointed by the pastor/parish director. 4. The pastor/parish director/administrator is not a member of the Parish Finance Council but presides over it. The Parish Finance Council never meets without the pastor/parish director/administrator. 5. The Parish Finance Council shall consist of at least three (3) but no more than seven (7) members of the faithful of Christ who are qualified in financial and business administration and, where possible, in matters of civil law as applicable to parochial circumstances. 6. The members of the Parish Finance Council serve a three (3) year term with at least one member being replaced yearly. Members may be named for one (1) additional term of three (3) years and then must take a leave from the council of at least one (1) year. 19-D

12 Parish Chapter 19-Financial Management and Internal Control 7. In the event a pastor/parish director/administrator ceases from office, the Parish Finance Council continues in existence, and assists the canonically appointed parochial administrator until a new pastor/parish director/administrator is appointed. 8. The Parish Finance Council is to adhere to the laws governing the administration of ecclesiastical goods as outlined in Book V of the Code of Canon Law and other applicable norms. 9. The Parish Finance Council is to assist the pastor/ parish director /administrator in preparing the annual budget of support/revenue and expense according to the guidelines of the diocese and its accounting procedures. It will also assist the pastor/parish director/administrator in monitoring actual performance against the budget during the course of the fiscal year through financial statements and other reports deemed appropriate. It will also participate in the review of the annual "Parish/Mission Financial Report." If the Diocese determines a "Financial Review" (See Chapter 7-A.4) of the Parish is necessary, the Parish Finance Council will participate in the review by consulting with the pastor/parish director/administrator in the engagement of the CPA, reviewing the parish s/school's representation letter, reviewing the financial statements and footnotes, and reviewing the CPA s management letter and assisting the pastor/parish director/administrator with an appropriate response. 10. The Parish Finance Council is to meet at least quarterly and more often if necessary. 11. If the parish has a school, the Parish Finance Council will assist in coordinating the budget of the school with the total budget of the Parish, clearly indicating the revenue/support and expense for the school. 12. The Parish Finance Council will assist the pastor/parish director/administrator in determining the best means of investing excess Parish funds in accord with the moral and legal principles of the Catholic Church and in accord with diocesan policies. 13. The Parish Finance Council is to assist the pastor/parish director/administrator in determining appropriate internal controls to provide reasonable assurance that the ecclesiastical goods of the Parish are safeguarded. 14. The pastor/parish director/administrator needs to consult with the Parish Finance Council in the hiring or dismissal of the Parish business manager or bookkeeper. 15. The pastor/parish director/administrator needs the consent of the Parish Finance Council in acts of extraordinary administration.* 16. The Parish Finance Council will assist the pastor/parish director/administrator to ensure that there is active and informed participation in the diocese s Discipleship/Stewardship Covenant. 19-D

13 Parish Chapter 19-Financial Management and Internal Control 17. The Parish Finance Council will assist the pastor/parish director/administrator in developing just and nondiscriminatory salaries and benefits for Parish employees, by review of the total budget. The pastor/parish director/administrator should develop salaries and benefits utilizing guidelines presented in the "Diocese of Pueblo Salary, Structure and Policy manual." The Parish Finance Council will ensure that the Parish budget shall adequately reflect anticipated costs for salaries and benefits. 18. The Parish Finance Council should be available to assist the pastor/parish director/administrator in any financial area of parochial administration where their financial expertise might be needed above and beyond the areas outlined above. 19. The Diocese will provide each Parish with current updates, as necessary, regarding accounting, risk management, human resources, investments, stewardship, property sale, building and renovation, facility use and tax exemption, etc. The Parish Finance Council is to inquire as to the issuance of such updates and the effect they may have on the Parish, if any. 20. In connection with the review of the annual "Parish/Mission Financial Report" the Parish Finance Council should consider evaluating and documenting its performance against the above duties and responsibilities. *Definition of "extraordinary" per FAC (Finance Advisory Council) Functions which require the consent of the Finance Advisory Council: (1) Extraordinary administration by the Bishop. Traditionally this includes all acts of alienation the acceptance or rejection of major bequests, land donations, purchases and sales, construction of new buildings or extensive repairs on old buildings, leasing or renting property for longer than nine years, long-term investment of capital, the establishment of a school or institution. (2) Alienation of the goods of the Diocese (the Holy See must also give permission for alienation over a maximum amount or for valuable goods. 19-D