Many funny comments here about the sorry volunteer Treasurer's plight, who is never going to get out of it. With Flywire's perhaps the most hilarious to me ("Been there as Treasurer, club meeting when I was away, members collected meeting fees then paid venue for meals out of money collected.... . It's worse when 12 months after you've left town you're still the Treasurer because there have been no volunteers.")! Michael Novack: "We finally got younger person for Treasurer instead of the Board every year passing a special measure to keep me on beyond the maximum term in the bylaws...." Will: " One of my longstanding complaints has been that no one ever looks at any of the finances except me. " It seems to me, though, that we can do a lot to make it easier for others to be involved constructively in real review, and hopefully to become comfortable and competent themselves. And, once you consider what good practices can be set up, then it seems to me that the responsible treasurer really should be adopting them (and if they're not, why not?). Here is another long post, now with me trying to summarize discussion and/or state some new ideas on what some best practices should be. 1. The treasurer is often the only person processing financial info, and usually is completely unreviewed in most small nonprofits. Few persons, except perhaps previous treasurers (who should be valued and kept around on the board or otherwise, if possible) understand much at all. It does have to be acknowledged that achieving separation of responsibilities, as recommended by textbooks and by some good governance organizations, is hard if not impossible to set up, if only one or a few are properly involved. This is a problem for the treasurer, because no one is being prepared to take over (so it is hard to get out, as has been observed), and because the treasurer is at some risk of being suspected of self-dealing or fraud. It is a problem for the organization, because there is a nonzero probability that real fraud will occur, either of the minor type where small sums of cash get misdirected (perhaps borrowed with intention to return, but then forgotten), or of the major type where it turns out an entire endowment is wiped out by the unsupervised person who spent it all on gambling over many years. Either way, potential donors may have a whiff of the possibilities, of not-quite-professional-seeming-practices, and may be wary of giving, even if nothing untoward is actually going on. 2. Formal audits of books, by a professional accountant, would be costly and are not likely to be worthwhile. However, a lesser review, corresponding to the internal audit processes of many large organizations can be done at little cost. The treasurer should work in ways that make it possible, at least potentially, for the records to be internally audited, and I think they should actively try to facilitate some amount of internal auditing. Interestingly, some national church organizations, including the Methodist church in the U.S., promote an internal audit process for local churches, in which committee performs a structured review. They independently verify that the assets claimed on the books do exist. They perform an audit sampling process, by picking some number of church members which they contact to check what those members donated during the year, and comparing that to what is recorded for them. Which is hugely important, I would think, in ensuring that the person(s) handling the incoming funds will not redirect any of them. The church organization's manual is very interesting in its presentation, pretty much arguing that "trust but verify" is the godly way to operate, and that the review process does not mean the church leader(s) are being disrespected. I personally am trying to facilitate such a review, involving past treasurers, in a nonprofit organization, but I can't claim success yet. 3. Cash is especially important, and there are better and worse ways to handle it. And better and worse ways to handle non-cash expenditures too. 3a) "Undeposited funds" should not be allowed, basically, is the consensus with which I agree. Someone pointed out that immediately getting to a bank with "coin" from a fund-raising event might be difficult for a rural/remotely located organization, but still it seems the cash receipts should be kept together (not drawn from in any way) and deposited as soon as possible. For one nonprofit's evening fundraising events, I have been focussing on getting a good count of cash done by the volunteers serving as cashiers, and having them attest to the count by their signature on a form. Then the treasurer would take the cash and deposit it to the bank the next day, and hypothetically the persons knowing what the deposit amount should be, could verify that the treasurer deposited the right amount. But in fact it is not realistic for the volunteer temporary cashiers to ever learn about what the deposit amount was. Better would be for the count to be done, with the treasurer signing off on the count too, and for one of the volunteers to make a night deposit of the cash (which turns out can be done here, without them having to access the bank account). And the treasurer will jolly well confirm that the right amount was deposited. 3b) Any incoming monies to a donation box should likewise also probably be handled by 2 persons. But I don't currently see how to really enforce this, if there is just one key to the box, because the box would have to require two keys (like a safety deposit box in a bank has), in order to enforce that two persons are present every time it is opened. Maybe if the box is covered by a security camera, then someone could be responsible for checking that the box is never opened by just one person though (or at least set up some risk for the person being caught). Similar to discussion about requiring 2 signatures on certain or all checks, where even if the bank doesn't enforce 2 signatures, it can be internally checked. 3c) A genuine very small petty cash pot _might_ possibly be useful or needed for some organizations where it really is impossible to pay for small things by credit or debit or check or bank transfer. If petty cash exists, then physical controls such as lock on the cash box and having a petty cash journal and maybe having multiple persons sign off on each usage of cash must be considered, to avoid likely dissipation of cash. 3d) Payments out for expenses should be done by debit or credit or bank transfer that leaves a path, and backed up by receipts. Or paid out in a reimbursement check to a member, upon documentation by receipt. With the receipts filed sensibly so that auditing can be done to ensure that expenditures were really for benefit of the organization. For one organization, it seems that filing hard-copy receipts into file folders by vendor makes the receipts retrievable and helps otherwise when considering anything about a given vendor. As opposed to filing by month. If invoices/receipts come in e-form, not hard-copy, then filing into directories/e-files by vendor should be okay to support auditing and other use, I would think. 3e) Not brought up in GnuCash discussion, but applies for BotanyBayGarden: If the organization has accounts at some vendors, where certain members may make purchases on account, then there can be an issue that receipts might not be provided back to the treasurer. Or not in a timely manner or not with proper identification of what type of functional expense and what job the charge is to be put against. Now, more vendors like hardware stores that serve BotanyBayGarden are implementing receipt management systems to serve larger customers such as construction contractors, where many individual employees might run out to get something needed, and be able to get it charged to the right job. So the treasurer might now be set up to receive an emailed copy, with signature, of the receipt given in hard-copy to the member making the purchase on account. So the treasurer can crack down and regain control! 3f) Not brought up yet: The treasurer of a tax-exempt nonprofit (e.g. a 501c3 nonprofit in the U.S.) should address themself to ensuring sales taxes are not paid unnecessarily, which involves setting up new vendors properly with whichever form of documentation of tax-exemption that they require. Not necessarily worth doing, for a one-time vendor. 3g) Not followed up from my original post: The assignment of expenses to specific jobs is important, and needs to be done fully and accurately. Whichever person is responsible for a given job (e.g. a person managing the spending of a specific grant to a nonprofit, or a job manager in a construction company, etc.) will naturally want to see what is being charged to their job, either in direct expenses (specific purchases, specific hours of labor) or in indirect expenses (allocation of overhead charges). It may be proper for them to question the rate of overhead costs that might be applied to their job, and they certainly will be verifying that direct expenses are correct. The use of job costing is part of decentralizing management, of allowing more persons to be constructively involved and sharing responsibility, as well as benefiting them with useful information. 3h) It ought to be possible for an internal audit committee to select any small area to review, or any small audit sample, and to verify that it was done properly. Especially all cash withdrawals from the bank accounts. And all collections of cash proceeds from fundraising or sales, being deposited. 4. Rotation of Treasurer is really important i think. A treasurer does need to commit to several years volunteering, probably, i.e. to a longer term than other board members, because there is such a learning curve (at least if the job has not been streamlined to become easy). But the best sign that an organization is financially proper is that there has been turnover of the CFO or treasurer or whatever, and/or that they take vacations. Books about Fraud Detection are all over that. A person who hangs on to such a job forever, who never goes on vacation, can cover up. The reason why I trust what the past treasurers did is that they were willing/happy to turn it over to the next person. When frauds are detected, it often turns out that a fraudster had to take a leave for some reason, and only then did someone else finally enter in close enough to detect a problem. Like a housing organization I know of, where 100% of the coins or tokens taken in by washer/dryer machines in the basements were taken away by an accounting person, for more than 20 years I think. The person put in obscure journal entries seeming to record receipt of the values, but with debit not to cash (i.e. to the bank account) but rather to something complicated. When challenged lightly, they would say it provided an offset to some obscure health benefits expense purpose or to settling some historical deficit of a former subsidiary that no one else understood, but "oops okay I will change that entry", and they'd make a different opaque entry also not increasing a real cash account. And they would be fierce and extremely unpleasant about having being questioned at all. Only when they really did have to take a leave for a medical operation or something, was it possible for someone else to figure out something was really wrong. And in this case a prosecution was pressed, but indeed some deal was made in the end where a pretty big sum was recovered but the full amount taken was never going to be known and the person just got probation i think. 4a) Anyhow rotation of treasurer has to be considered of high importance, so you can get out of this and move on to something else! So reasonably detailed instructions/documentation of the Treasurer's tasks need to be developed, to make it more feasible to pass the job on. And the job needs to be streamlined to reduce workload for the treasurer, for their own sake and to make it easier to pass on. Like by setting up electronic bill payments rather than writing hard-copy checks. And by 5. Falsification of records in any way is bad. Okay i goofed in my original post in trying to explain/describe/defend what I perceived to be likely real processes around year-end for nonprofits, where I perceived that backdating some cash receipts or payments to December 31 would be a sensible way to effectively implement some sensible accruals. I explained already that in part I believed this because I can see no nefarious purpose at all (no volunteer is receiving any financial benefit from financial results turning out one way or another). But it is part of "setting the tone from the top" that no perception of misdirection should be allowed. In one nonprofit I know, there was/is a strong belief that accounting should be done on a cash basis, i.e. kept simple (so not using Accounts Receivable or Accounts Payable) for good reason that the job for future treasurers should not become more difficult or time-consuming. However now I think that it nonetheless should be changed officially to a (mostly) accrual basis. It can operate on a cash basis during the year, but after the end of the year, a few journal entries should be done that set up appropriate AR and AP for the transactions that really belong to the previous year. I think this can be done transparently enough for AR, even without firing up a complicated invoicing system, by providing a detailed list of bills included in the AR set up for December 31 by journal entry. And allowing for the bills to be paid by checks drawing on cash (bank balance) just as usual, without setting up and posting invoices, so in effect showing duplication of expense temporarily, but then having the duplication reversed by a journal entry in the new year. But by the way, the proper way to enter journal entries that are closing out a period into an accounting system, is to date the journal entries to the last day of the period. Although the journal entry is actually being implemented after the relevant facts are known, say on January 15. The documentation of the journal entry, perhaps on a hard-copy paper which needs to get 2 signatures, would have the actual January 15 date on it though. Put that in your pipe and smoke it, this is not "falsification"! Setting an ethical tone from the top is a key first element, per textbooks about Fraud Detection etc., in organizations' fighting to be effective in general and specifically in fighting against fraud. Comments about this collection also welcome. I do think the discussion to date and this collection are addressing things not covered well in any guide/training for nonprofit treasurers, at least not any guidance I am aware of. I personally would certainly like to collect any compendiums of guidance that anyone else can refer me to. --cheers, Don
On Sun, Jul 26, 2020 at 12:48 AM flywire <flywi...@gmail.com> wrote: > > Here's what my accounting 101 textbook says about cash receipts: > > >> * All cash receipts should be deposited intact in the bank... Cash > disbursements should not be made from cash receipts but only by check or > from petty cash. > > lol Do the accountants want to handle the books for all community groups? > > Been there as Treasurer, club meeting when I was away, members collected > meeting fees then paid venue for meals out of money collected and $1/member > was handed over as petty cash. Recorded in books as split with amount > collected less meal expenses. > > Probono Auditor says fairly insistently you've committed fraud. I say get > stuffed, just pass an opinion on whether books are reasonable or not. In my > view they'd lost the understanding of what the job was (flame me). It's > worse when 12 months after you've left town you're still the Treasurer > because there have been no volunteers. > _______________________________________________ > gnucash-user mailing list > gnucash-user@gnucash.org > To update your subscription preferences or to unsubscribe: > https://lists.gnucash.org/mailman/listinfo/gnucash-user > If you are using Nabble or Gmane, please see > https://wiki.gnucash.org/wiki/Mailing_Lists for more information. > ----- > Please remember to CC this list on all your replies. > You can do this by using Reply-To-List or Reply-All. > _______________________________________________ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. ----- Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.