Suggested Internal Audit or Financial Review Procedures

The purpose of an audit is to determine if the organization is in compliance with generally accepted accounting principles (GAAP) and whether the financial statements are comparable to previous year’s financial statements. If your church does not have the budget for a full-fledged audit, there are still some things you can do. While some of the steps below reference Church Windows Software-specific report names, other software options may have a similar report.

Here is a compilation of practices passed on to us by our customers. This list is for informational purposes only. Computer Helper Publishing is not responsible for the conduct of church audits, nor does it provide legal or financial advice to congregations through this resource. However, if you are looking for assistance with an audit, you check out this accounting and auditing services here for great help! We are also pleased to refer you to Steeple Accounting Services’ owner, Mary Lou Turnbull. Mary Lou was a Church Windows trainer for over ten years and is a Certified Fraud Examiner. The web address for the company is www.steepleaccounting.com.

1. Donations vs. Accounting

• Compare a sampling of donation dates to the deposits on the bank statement for the given week and to the deposits in the Accounting module. Reports: Batch Report or Log Report in Donations; Transaction Journal in Accounting; Bank Statement.
• Compare hand-written source documents (i.e., teller sheets, money counter deposit records or randomly selected dates of giving envelopes) with the summary from the Donation module for a given week(s). Reports: Batch Report as printed on the date of donation entry, Log Report in Donations; Summary of Cash Activity and Transaction Journal in Accounting.
• If the church utilizes pass-through liability accounts, check to ensure that the amounts were forwarded to the proper parties. Reports: General Ledger and Balance Sheet in Accounting.
• Randomly select 10-15 names of members who donate to the church. Send each person or family a donation statement for the prior year that prints amounts given to ALL accounts. In the accompanying letter to them ask them to verify that what they gave in the prior year as shown on the CW statement matches their personal information. If this includes accounts not printed typically on a statement, such as non-deductible amounts, explain those accounts. You may have already sent them a donation statement, but it is advised that you send this one as well.

2. Bank Reconciliation

• Ensure that bank reconciliations are being completed within the Bank Reconciliation area of Accounting. The finalized bank reconciliation (with a $0 difference to reconcile) should be filed with the bank statement for that month. Report: Bank Reconciliation in Accounting.
• Review the bank reconciliation for each month and compare to the bank statement paying particular attention to debit memos and other charges from the bank. You are trying to verify each transaction as to purpose and amount. Reports: Summary of Cash Activity, General Ledger and Bank Reconciliation in Accounting.
• Summary of Cash Activity, General Ledger and Bank Reconciliation in Accounting.
• Make sure that all check numbers are accounted for in the Check Register. Report: Check Register in Accounting.
• If there are any checks on the check register made out to cash or to the check signer, verify the legitimacy of the transaction. Look at the supporting documentation for the payment. Report: Check Register in Accounting and Transaction Journal.

3. Budget vs. Actual Expenditures

• If the church has a budget for expenses, compare actual amounts spent to the budget amounts and investigate all differences over a certain dollar amount as determined by the Audit Committee. Report: Treasurer’s Report (including Budget comparison) in Accounting.
• Select a small sample of checks that have cleared the bank and go back to the supporting documentation (i.e., paid invoices, expense reimbursement, etc.) to make sure that the charge was approved, that the church received the item/service and that it was charged to the proper account. Also, ensure that the check signer is authorized. Report: Transaction Journal and the Accounts Payable Journal in Accounting.

4. Payroll

• Compare the payroll amounts to the salary/wage authorized or budgeted. Make sure that the related payroll reports (941, W-2, etc.) and tax deposits were filed and remitted to the proper taxing authorities on a timely basis. The bank statement will show the withdrawals that should match the payments made out of Church Windows. It is recommended that a printed copy of each 941 be signed, dated as to date it was filed and then stored with payroll information. Reports: Pay Period Deductions, W-2 Forms and Quarterly 941 Form in Payroll; General Ledger and Treasurer’s Report in Accounting.

5. Accounts Payable

• Scan the list of accounts payable vendors for any new or unknown vendors. Review supporting documentation for any payments to unknown vendors. Reports: Accounts Payable List and Accounts Payable Journal in Accounting.

6. General Ledger and Other Items

• Review a transaction journal for items such as journal entries and transfers to make sure they were handled correctly. Is there a sufficient explanation in the comments area on journal entries? Report: General Ledger or Transaction Journal in Accounting.
• If the church has designated or restricted funds (other than the General/Operating fund), are expenditures from the fund in compliance with the purpose of the fund? Reports: Fund Activity Report and General Ledger in Accounting.