Protecting the Bookkeeper

In accounting circles, there is a lot of discussion about segregation of duties. This phrase may sound complex or technical, but segregating duties is simply the process of having more than one person involved in a task or process.

 

We often talk about segregating duties as a way to reduce the risk of fraud and ensure accurate financial reporting, accountability, and transparency of financial operations. However, equally as important, segregating duties is a key component to protect the character and integrity of those who handle the finances. In church finances, this means at least two people are involved in receiving funds, spending funds, and recording the financial transactions. Quite simply, it means there are two sets of eyes on every transaction.

 

But in many of our churches, the bookkeeping function is usually performed by one person because resources aren’t sufficient to hire additional employees. And more often than not, this person is also tasked with other roles, like secretary or ministry program leader.

 

As a result, it can be difficult to segregate financial duties. Here are a few common scenarios I often see in our churches:

 

Scenario #1: The bookkeeper counts the offering, makes the deposit, and records the deposit in the financial records by herself.

 

Scenario #2: The bookkeeper creates checks but does not sign the checks. However, the bookkeeper does have access to online banking and can initiate electronic payments.

 

Scenario #3: The bookkeeper creates checks but does not sign the checks. The bookkeeper’s husband is the pastor or board member. The pastor or board member can sign checks and authorize payments and transfers.

 

In all of these scenarios, the bookkeeper has too much control over the finances and could conceal unauthorized activity because the process lacks sufficient accountability. Further, the lack of accountability also leaves the bookkeeper unprotected and open to scrutiny.

 

Are there practical ways to segregate financial duties without adding another employee? Can you make sure there are two sets of eyes on every transaction without causing a delay in paying bills?

 

In the previous scenarios, one person is involved in all financial transactions, including making the deposit, writing checks, and recording transactions in the financial records. To improve accountability and segregate duties, I recommend tasking an existing employee or board member to perform some simple review steps on a weekly or monthly basis.

 

Here are some practical—and no cost—ways to segregate financial duties and increase accountability and transparency of financial transactions. These safeguards will also help protect the bookkeeper’s character and integrity. Have someone other than the bookkeeper perform the following reviews.

 

Objective 1: To make sure all deposits are properly recorded and deposited, perform the following:

 

Review weekly offering count sheets and trace totals from count sheet:

a. To deposit report.

b. To bank statement.

c. To financial records and donor records.

 

Review reconciled bank statements and perform the following:

a. Trace “beginning balance” to bank statement, and trace “register balance” to balance sheet or financial records.

b. Validate reconciling items (deposits in transit, outstanding checks) by tracing to next subsequent bank statement.

c. Research any outstanding check that doesn’t clear by next statement, unusual reconciling items, and reconciling items that are carried over from month to month.

d. Determine if the reconciliation is performed correctly and timely.

 

Review bank statement activity for reasonableness. Look for any unusual withdrawals or electronic payments. Research any abnormal activity.

 

Objective 2: To make sure all disbursements are appropriate and properly recorded in the financial records, perform the following:

 

Periodically, review cancelled checks (usually included with bank statement, or can request from bank). Make sure front and back of check look appropriate. Research any unusual endorsements. Select a few checks to review and perform the following:

 

a. Trace vendor name and amount back to invoice or receipt.

b. Trace vendor and amount to financial records.

 

Review an activity report of all transactions in the month for reasonableness. Research  unusual activity. Verify appropriateness of transactions written to “cash,” or to any staff member, or to any unknown vendor.

 

Review credit card statement activity for reasonableness and compliance with your church’s purchase policies. Research any unusual activity or cash advances.

 

Review the numerical sequence of checks issued in the current year and investigate any missing numbers. Review any voided checks and make sure the check hasn’t cleared the bank in the following months.

 

Objective 3: To make sure weekly payroll is proper, perform the following:

 

Review a weekly payroll register and make sure total pay is reasonable and expected.

 

Note any individual changes from previous week and obtain confirmation that change was appropriate.

 

Make sure number of payroll checks is appropriate (i.e., 52 paychecks in a year for weekly payroll or 26 paychecks in a year for biweekly payroll).

 

These are just a few review steps that another person can do each week or month. This review doesn’t require hiring another employee and won’t take a lot of time to complete, but will go a long way to help improve the accountability of the church finances.

 

Even though the specific roles and responsibilities of your bookkeeping function might be a little different than the scenarios presented, your church can incorporate many of these review tasks to further segregate duties and increase accountability.