How to Complete an Audit

Quarterly Internal Audit Report (IAR-1)

Annual Internal Audit Report (IAR-1)

2014 Regional Conference CycleNational Internal Audit

Committee Training

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Chair

Myrna Phillips, CPA, MBA PMP

Alumnae Members

Pamela Hill, MAcc, MPA

Courtney Smith, CPA, CIA

Collegiate Member

Ivyanne Kenya London

Staff Liaisons

Gwendolyn Dailey

Crystal Mitchell

Terry Jones

National Internal Audit Committee

CNIACDST@gmail.com

hillpamelar@gmail.com

cesmith217@gmail.com

ivyanne_london@aol.com

gkdailey@deltasigmatheta.org

cmitchell@deltasigmatheta.org

tjones@deltasigmatheta.org

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Agenda• Purpose of Internal Audit• Constitutional Requirements• Code of Conduct Penalties• Acceptance of Responsibility Form• Purpose of the Internal Audit Committee• Internal Audit Communication• Planning the Internal Audit• Chapter Annual Audit Requirements• Audit Sample, Procedures & Testing• Audit Communication• IAR-1 Quarterly and Annual Form Input• Questions?

Why Perform A Quarterly Audit?

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An internal audit is the mechanism by which a chapter assesses the level of compliance to chapter policies and procedures and internal controls

Purpose of an Internal Audit

The better the control environment, the less likely unexpected events are to adversely affect an entity's ability to execute on its strategies and achieve its objectives.

Performing quarterly internal audits helps prevent: Theft Fraud Embezzlement

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Purpose of an Internal Audit

Increases accountability

Improves: - ethical and professional practices - the quality of output and supports decision-making and

performance tracking

Can be used : - to examine and evaluate activities - as a service to the institution promoting effective control at

a reasonable cost

Helps organizations achieve their stated objectives

An Internal Audit:

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The misappropriation of funds is due primarily to fiscal

officers not performing their duties and responsibilities

Purpose of an Internal Audit

All chapters should have fiscal policies and procedures in place that define its internal controls for safeguarding chapter assets.

The audit assesses whether fiscal officers are performing their duties according to the written policies.

The audit also helps highlight potential problems that may result in future financial losses if not corrected.

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Constitutional Requirements

Audit of Chapter AccountsConstitution and By-Laws

Article X; Section 12.B

The books of a chapter shall be audited by a certified public accountant or an audit committee within 30 days of the close of the fiscal year. A copy shall be submitted to National Headquarters by August 31.

NOTE: Failure to submit the Internal Audit Report (IAR-1) and/ or a copy of the external audit to National Headquarters by August 31st is a violation of the Constitution and By-Laws and may be subject to sanctions and fines as stated in Section 5 C of the Code of Conduct.

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Code of Conduct Penalties

Failure to submit Annual Audit Report (IAR-1 Form):

By the required deadline (August 31st) Fine $200

30-90 days after the required deadline Fine $300

More than 90 after the required deadline Suspension for 6 Months or Fine

$500

Failure to submit the Internal Audit Report(IAR-1) and/ or a copy of the external audit to National Headquarters by August 31st is a violation of the Constitution and Bylaws and may be subject to sanctions and fines as stated in Section 5 C of the Code of Conduct.

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Acceptance of Responsibility Form

Purpose: To ensure Chair, Internal Audit Committee clearly understands, acknowledges, and accepts her responsibilities

– Conduct quarterly audits and the annual audit according to the due dates established by the National Internal Audit Committee

– File the IAR-1’s and the Annual IAR-1 in the Red Zone according to the due dates established by the National Internal Audit Committee

– Discuss the draft recommendations and findings on a quarterly basis with the Fiscal officers

– Report the findings and recommendations of the audits to the Executive Board and then to the chapter on a quarterly basis

Due: August 31st of each fiscal year

New Requirement for Chapter Internal Audit Chairs

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Acceptance of Responsibility Form

• National Website• Print and complete the form• Make a copy for the chapters records• Mail the original form to:

Delta Sigma Theta

Attention: Director of Finance

1707 New Hampshire Avenue, NW

Washington, DC 20009

Purpose of the Internal Audit

Committee

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The committee’s purpose includes:

Purpose of the Internal Audit Committee

Recommending for chapter approval an independent auditor to conduct the annual review/audit (if applicable)

Reviewing and proposing internal controls

Performing the chapter’s quarterly internal audits

Reporting audit findings and recommendations to the chapter

Submitting the IAR-1 Form for each quarter online

Submitting the Annual IAR-1 Form online by August 31st

Selection of the

Internal Audit Committee

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Who should be on the Internal Audit Committee?

Target sorors who have financial or audit

backgrounds

Sorors who know about the chapter’s finances, but

who are not the current fiscal officers

A designated external person can be selected to

perform the audit if the chapter’s size does not

permit the establishment of an internal audit team

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Who should not be on the committee?

Current Fiscal Officers President, Treasurer, Financial Secretary, Assistant

Treasurer, Assistant Financial Secretary

Members of the Budget/Finance Committee

Chapter Advisors NOTE: While not ideal, Immediate Past Financial officers may serve

as long as they do not audit or review transactions which they initiated

or were privy to.

Internal Audit Communication

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Every successful audit is based on:

Internal Audit Communication

Sound planning

An atmosphere of constructive involvement

Effective communication

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The Internal Audit Committee and the Chapter Fiscal Officers should work together to complete the internal audits by:

Internal Audit Communication

developing a process (how it will be done), and agreeing to a timeframe (when it will be done)

Chapters should know that the Internal Audit Committee: has an active interest in ensuring internal controls are in

place and effective and, wants to ensure that the established policies and

procedures are being followed.

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The culmination of the internal audit is the audit report.

Internal Audit Communication

The audit report should be designed to assist chapter leadership in measuring its own performance - particularly with respect to the reliability and soundness of established internal controls.

The Internal Audit Committee should report any audit findings and recommendations to the chapter after each audit.

The results of the internal audit are confidential and should only be discussed through the formal communications mechanisms set forth in the chapter’s policies and procedures.

Planning the Internal Audit

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Planning the Internal AuditKey Audit Reporting Dates

ANNUAL REPORTS

Report RED ZONE Due Date• Annual Internal Audit Report (IAR-1) August 31st

• External Review / External Audit August 31st

 

QUARTERLY REPORTSReport RED ZONE Due Date

• Quarter 1 (July 1 to September 30) December 1st• Quarter 2 (October 1 to December 31) March 1st• Quarter 3 (January 1 to March 31) June 1st• Quarter 4 (April 1 to June 30) August 1st

 

All reports must be filed using the on-line system in the Red Zone.

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Planning the Internal Audit

The chapter’s financial records shall be audited quarterly, based on the sorority’s fiscal year (July 1 – June 30).

The audit will begin two weeks after the end of the quarter.

The schedule for the fiscal year audits is as follows:

Scheduling the Quarterly Audits

Transaction Period

Chapter Audit Committee Begins Audit Report to Chapter by

File in the Red Zone

Q1 July 1 - September 30 2nd week in October 2nd week in November Dec. 1Q2 October 1 - December 31 2nd week in January 2nd week in February Mar. 1Q3 January 1 - March 31 2nd week in April 2nd week in May Jun. 1Q4 April 1 - June 30 2nd week in July Sep. Chapter meeting Aug. 1Annual IAR-1 N/A Sep. Chapter meeting Aug. 31External Audit/External Review N/A Sep. Chapter meeting Aug. 31

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Audit Requirement

Gross Receipts Requirements Performed By

Level 1: $0 - $50,000           Internal Audit Report (IAR-1) Internal Audit Committee

          Review of Financial Statements Licensed CPA

          Internal Audit Report (IAR-1) Internal Audit Committee

          Audited Financial Statements Licensed CPA

          Internal Audit Report (IAR-1) Internal Audit Committee

Level 2: $50,001 - $100,000

Level 3: more than $100,000

Audit Levels

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AUDIT SAMPLE, PROCEDURES & TESTING

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Sample Selection

When examining less than 100% of the transactions, a sample needs to be selected. It is preferable to use a statistical sampling method.

Statistical Sampling –

1. Random sampling

2. Systematic sampling

Nonstatistical Sampling –

1. Haphazard sampling

2. Judgmental sampling

Statistical Sampling vs. Nonstatistical Sampling

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Receipts

Receipts represent the total funds collected from dues, conferences, fundraising, etc.

Objectives

• Ensure that all cash/check receipts are deposited timely (within 2 business days of receipt).

• Confirm that the receipts are recorded accurately

.NOTE: Receipts do not include the movement/transfer of monies between chapter accounts (example transfers from Operating to Fundraising).

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Validating Receipts

1. Compare the Financial Secretary’s Logs to the

Bank Statement Deposits2. Compare the Financial Secretary’s Logs to the

Treasurer’s Reports 3. Compare Receipt Books to the Bank Deposit

slips4. Verify Member Dues to the Member Log

5. NOTE: For the Annual IAR-1, compare the total gross receipts with the Annual Financial Report (Form 990). If these amounts are

different, the Annual IAR-1 form WILL NOT BE ACCEPTED.

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Validating Receipts

Apr May Jun Jul Aug Sep Oct Nov Total4,500.00$ 6,017.18$ 3,951.06$ 390.00$ 860.00$ 1,384.06$ 881.09$ 456.09$ 18,439.48$

Cumulative 4,500.00$ 10,517.18$ 14,468.24$ 14,858.24$ 15,718.24$ 17,102.30$ 17,983.39$ 18,439.48$

Apr May Jun Jul Aug Sep Oct Nov Total4,500.00$ 5,702.18$ 3,951.06$ 705.00$ 860.00$ 1,384.06$ 881.09$ 456.09$ 18,439.48$

Cumulative 4,500.00$ 10,202.18$ 14,153.24$ 14,858.24$ 15,718.24$ 17,102.30$ 17,983.39$ 18,439.48$

Apr May Jun Jul Aug Sep Oct Nov Total-$ 315.00$ -$ (315.00)$ -$ -$ -$ -$ -$

Cumulative -$ 315.00$ 315.00$ -$ -$ -$ -$ -$

Comparison of Financial Secretary's Log to Deposits

Receipt Log (Financial Secretary's Log)

Deposits from Bank Statement

Difference

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Validating Receipts

Apr May Jun Jul Aug Sep Oct Nov Total4,500.00$ 6,017.18$ 3,951.06$ 390.00$ 860.00$ 1,384.06$ 881.09$ 456.09$ 18,439.48$

Cumulative 4,500.00$ 10,517.18$ 14,468.24$ 14,858.24$ 15,718.24$ 17,102.30$ 17,983.39$ 18,439.48$

Apr May Jun Jul Aug Sep Oct Nov Total-$ 4,500.00$ 6,437.05$ -$ -$ 1,485.00$ 1,284.06$ 456.09$ 14,162.20$

Cumulative -$ 4,500.00$ 10,937.05$ 10,937.05$ 10,937.05$ 12,422.05$ 13,706.11$ 14,162.20$

Apr May Jun Jul Aug Sep Oct Nov Total4,500.00$ 1,517.18$ (2,485.99)$ 390.00$ 860.00$ (100.94)$ (402.97)$ -$ 4,277.28$

Cumulative 4,500.00$ 6,017.18$ 3,531.19$ 3,921.19$ 4,781.19$ 4,680.25$ 4,277.28$ 4,277.28$

Treasurer's Report

Difference

Comparison of Financial Secretary's Log to Treasurer's Reports

Receipt Log (Financial Secretary's Log)

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Disbursements

Disbursements represent the total checks and non check payments (wire transfers, etc.) issued.

Objectives

Ensure that all disbursements are recorded timely

Disbursements are properly supported and approved

Disbursements are recorded accurately

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Member Dues Verification

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Disbursements Verification

Obtain the Cash Disbursements Register for the audit period to verify gross expenses:

Verify that all check numbers are accounted for Ensure that all checks issued are recorded Obtain an explanation for checks issued out of

sequence Compare the total expenditures recorded Compare the total calculated expenses with the

Annual Finance Report (Form 990) cash disbursements and explain any differences

Verify unused check stock

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Disbursements VerificationVerify Disbursements• Select 25% of the total checks issued (but not more than 15 per quarter) and

perform the following tests:

– Examine supporting documentation for the disbursement

– Compare the completed voucher with the budget line item amount

– Verify that the disbursement was approved

– Compare the details with the Disbursements register.

– Compare the disbursement to the check copies or images

– Verify that the check payee is not the check signer or the approver

– Verify documentation and authorization for disbursements made using

merchant accounts or secure online payment systems such as PayPal

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Validating Disbursements

Check#Check Made

Payable To:Check Amount Comments

            Yes No Yes No Yes No Yes No

1 2184 VOIDED $ -

2 2203 Karen Soror $ (29.19)

3 2276 Delta Sigma Theta $(160.00)

4 2309 Teresa Soror $(282.23)

5 2424 Cash $ (30.00) Payable to cash

6 2481 Hotel California $(275.50)

Voucher Exists

Dual Signatures Separation DocumentationDate

NOTE: Select a statistical sample of 25% of disbursements but no more than 15 per quarter.

* This is the “Disbursements” tab from the IAR-1 form.

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Disbursements Verification

Other Disbursements –

Non-check disbursements consist of wire transfers, EFTs, cashier’s checks and online payment systems such as PayPal. • Verify that documentation exists to support 100% of

non-check disbursements.• Ensure that proper approvals exist to support the

issuance of the non-check disbursements.

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Verify Non-Check Disbursements

Date AmountMonth on

Finance ReportVoucher

exists Comments

9/10/10 875.00$ September Yes Wire Transfer

11/23/10 66.63$ November No Check Re-Order

12/13/10 375.00$ January Yes Vendor Payment

1/05/11 800.00$ January Yes Wire Transfer

2/08/11 770.00$ February Yes Wire Transfer

3/15/11 4,400.00$ March Yes Wire Transfer

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Verify Voided Checks

Examine the checks

Observe that the reason for voiding is documented

and the check is cancelled

Verify that the voided check does not appear on

the bank statement

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Verify Voided Checks

Check Number

Check Date

Check Amt Payee

Void recorded in Check Register

Voided check

added back to balance

Original voided

check filed

Voided check appears on

bank statement

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Bank Balances

The bank balances represent the amount of cash available in the chapter’s bank accounts.

Objectives

Ensure the chapter bank balances are accurate Ensure the chapter discloses all bank accounts

and balances Ensure the bank account reconciliations are

performed timely

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Bank Reconciliation

Bank Statement as of: June 30, 2010

Bank Statement Balance

Checkbook Balance Difference Comments

Balance 7,795.42$ 6,273.44$ 1,521.98$ -Less outstanding checks

-Check number 234 (128.34)$ (128.34)$ -Check number 345 (124.00)$ (124.00)$ -Check number 350 (376.87)$ (376.87)$ -Check number 363 (1,000.00)$ (1,000.00)$ -Check number 364 (78.43)$ (78.43)$ -Check number 365 (600.00)$ (600.00)$ -Check number 366 (29.34)$ (29.34)$

-Less bank fees (40.00)$ 40.00$ Checks-Less other charges (25.00)$ 25.00$ Stop Payment fee-Plus deposits in transit 750.00$ 750.00$

Balance 6,208.44$ 6,208.44$ -$

Audit Communication

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Summary Report

Audit Communication

Summary Audit reports have three major objectives: 1. Inform2. Persuade 3. Obtain results

The Summary Audit report should contain: Heading, including chapter name, period, and type of report A high level overview of the scope including the period under

review A summary of the findings, and An opinion of the overall state of the records

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Detailed Audit Report

Audit Communication

The Detailed Audit report contains the comprehensive results of the audit testing which supports the information in the Summary Audit report.  Ensure that the report: Is clear, concise, and free of unnecessary detail Is consistent in any conclusions expressed Summarizes operating policies and procedures referenced Is easily understood, presented logically, and is to the point Is constructive and balanced throughout Use graphics or attachments, as appropriate, which help to

convey points or provide additional information

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Recommendations

Draft Audit Report

List recommendations and relate back to findings

Refer to Delta reference documents as necessary (Constitution & By-Laws, Chapter Management Handbook, Finance Workshop Manual, Chapter Policies and Procedures, etc.)

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IAR-1 Quarterly Form Input

• The IAR-1 Form should be input by the chapter’s current Internal Audit Chair. When all input is complete the current Internal Audit Chair will electronically sign the form.

• The current chapter president reviews the data input by the current Internal Audit Chair and then electronically signs the form.

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IAR-1 Quarterly Form Input

- Go to the Members Area

- Click the The Red Zone

- radial button

- Click Submit

Log into The Red Zone – www.DeltaSigmaTheta.org

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IAR-1 Quarterly Form Input

- Go to the Members Area

- Click the The Red Zone radial button

- Click Submit

Log into The Red Zone – www.DeltaSigmaTheta.org

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IAR-1 Quarterly Form Input

Log into the Red Zone

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IAR-1 Quarterly Form Input

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IAR-1 Quarterly Form InputClick on Audit Reports

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IAR-1 Quarterly Form Input

Use your Sisters Portal logon and password here to enter the Financial Forms area

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IAR-1 Quarterly Form Input

Select Quarterly Forms from the menu on the left side of the screen

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IAR-1 Quarterly Form Input

Select Start a New Report from the menu on the right side of the screen

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IAR-1 Quarterly Form Input

Enter your Chapter Tax ID if not pre-populated

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IAR-1 Quarterly Form Input

Enter the indicated information from the Excel spreadsheet which has been

completed in advance

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IAR-1 Quarterly Form Input

Review the Instructions

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IAR-1 Quarterly Form Input

Chapter Information will be Pre-populated.

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IAR-1 Quarterly Form Input

Enter Chapter Bank Account information.

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IAR-1 Quarterly Form Input

Enter chapter’s expenses and gross.

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IAR-1 Quarterly Form Input

.

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IAR-1 Quarterly Form Input

.

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IAR-1 Quarterly Form Input

.

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IAR-1 Quarterly Form Input

.

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IAR-1 Quarterly Form Input

.

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IAR-1 Quarterly Form Input

Enter the Dues Exceptions ONLY

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IAR-1 Quarterly Form Input

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IAR-1 Quarterly Form Input

Select an Overall Finding

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Annual IAR-1 InputIf the Internal Audit Committee is in transition:

• The outgoing IA Chair and committee have the responsibility of completing the 4th quarter audit and ensuring the Annual IAR-1 form and external audit (if required) is completed and provided to the incoming IA Chair. (Note: the IA chair and committee will also sign the signature page as members)

• The current (incoming) IA Chair will input the data into the Annual IAR-1 form in the online system and electronically sign the form.

• The current (incoming) IA Chair is a participant in the activities related to the preparation of the Annual IAR-1 form and the external audit. She shall be attentive and open to actively observing during this transition period.

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IAR-1 Annual Form Input

Use your Sisters Portal logon and password here to enter the Financial

Forms area

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IAR-1 Annual Form Input

Select Annual IAR-1 Forms from the menu on the left side of the screen

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IAR-1 Annual Form Input

Start a New Report

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IAR-1 Annual Form InputChapter Information will be pre-populated.

Select Applicable Fiscal Year.

Enter Date Internal Audit Completed.

Enter Gross Receipts for fiscal period.

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IAR-1 Annual Form Input

Review the Instructions

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IAR-1 Annual Form Input

Review the Instructions

Chapter Information will be pre-populated.

Audit Date and Gross receipts will be pre-populated from entry on previous screen.

 

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IAR-1 Annual Form Input

Reviews Section

Answer each question under Internal Control Procedures

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IAR-1 Annual Form Input

Internal Control Procedures –

cont’d

Answer each question under Internal Control

Procedures

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IAR-1 Annual Form Input

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IAR-1 Form Input

Bank Accounts

Answer each

question

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IAR-1 Annual Form Input

Bank Accounts –

Cont’d

Be sure to include all

accounts and Check

Signers.

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IAR-1 Annual Form Input

Bank Accounts –

Cont’d

Be sure to include all

accounts and Check

Signers.

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IAR-1 Annual Form Input

Bank Accounts –

Cont’d

Verify that Bonded

Member info is correct

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IAR-1 Annual Form Input

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IAR-1 Annual Form Input

Select a statistical sample of 50% of total checks written but no more than 50.

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IAR-1 Annual Form Input

Enter the Member Dues EXCEPTIONS

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IAR-1 Annual Form Input

Select an Overall Audit finding, add Audit Committee members and upload External Auditor

information if applicable.

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IAR-1 Annual Form Input

Upload the Audit Form, Signature page and any CPA reports.

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Reminders

• Uploaded documents must be in PDF or JPEG format• Form 990 must be submitted and accepted online prior to submitting

the Annual IAR-1 form• Gross receipts on Line 7 of the Form 990 must match the gross

receipts amount on the Annual IAR-1– The account balances on Line 15 of the Form 990 must match the account balances

of the IAR-1 entered as Total Revenue and Total Expenses

• Complete Excel Audit Template & Worksheets before input to the Quarterly IAR-1

– Cash receipts worksheet– Disbursements worksheet– Member dues worksheet

– NOTE: All worksheets and schedules of the IAR-1 must be completed.

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Reminders• IAR-1 must be signed by both the CURRENT chapter Internal Audit

Chair and the CURRENT chapter President to be accepted.

• Collegiate Chapters only- If the chapter has 3 members or less and does not have an Internal Audit Chair, the CURRENT chapter President must sign the IAR-1 and send an email/ or call the finance department at Headquarters to have the IAR-1 reviewed.

• Collegiate Chapter Advisors – CANNOT sign the IAR-1 nor can they prepare the IAR-1. If the chapter has three members or less and /or does not have chapter members with the expertise to complete an audit, the collegiate chapter must secure the services of an outside auditor to prepare the IAR-1 form (i.e. an alumnae chapter fiscal officer or and external auditor) .

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Delta Audit Website

The following forms and documents are available on the Delta Website:

• DST Quarterly Audit Form

• How to Conduct an Audit Webinar

• Internal Audit committee Webinar Q and A

• 2014 Internal Audit Manual

• 2013 Webinar Annual Online Internal Audit Reporting Form IAR-1 - (contains audio)

• Quarterly IAR-1 Entry of Data Screenshots

• ANNUAL IAR-1 Entry of Data Screenshots

Resources

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Chair

Myrna Phillips, CPA, MBA PMP

Alumnae Members

Pamela Hill, MAcc, MPA

Courtney Smith, CPA, CIA

Collegiate Member

Ivyanne Kenya London

Staff Liaisons

Gwendolyn Dailey

Crystal Mitchell

Terry Jones

National Internal Audit Committee

CNIACDST@gmail.com

hillpamelar@gmail.com

cesmith217@gmail.com

ivyanne_london@aol.com

gkdailey@deltasigmatheta.org

cmitchell@deltasigmatheta.org

tjones@deltasigmatheta.org

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QUESTIONS