Essentials of Internal Control – full article

Here is the full text of my article, Essentials of Internal Control, appearing in Church Management News from Bank of the West.  The online article is here.

The article discusses three key ideas:

  • The bookkeeper should not sign checks
  • Trust is NOT an internal control
  • Review unopened bank statement by someone outside of accounting

Essentials of Internal Control

By James L. Ulvog, CPA

The business administrator of a nearby church has been formally charged with embezzling close to $1 million over four years, according to a recent newspaper article. Few details are publicly available. I have friends who worship there, so this hits close to home. I grieve for my friends, the congregation, believers whose faith has been shaken, and even the accused man and his family.

Last year, the bookkeeper of a women’s shelter in my area was sentenced to one year in prison for embezzlement. The executive director of the center was quoted in a newspaper article as saying the shelter had to sell one of their several houses in order to keep operating. The director said eighty women and their children were denied services.

I was going to start this article with a rational appeal to logic as the way to encourage more emphasis on internal controls in our churches. Instead, I would like you to ponder the devastation that follows in the wake of a disaster that can arise from a breakdown in internal controls. The previous reports are only two examples. One of the main goals of developing internal control is to prevent these situations. I could tell you of many more tragedies. A few moments of searching the internet will find dozens of stories.

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Cartoon posted to illustrate good controls protect the innocent from false accusations

I have a new cartoon posted at Once Upon Internal Control showing good internal controls in a local church. The dramatization is based on a reporter calling for comment about rumors of a high-flying lifestyle.

Cartoon called: When a reporter calls, good procedures save the day. Visit the other blog for the cartoon. I will be posting cartoons there.

Essentials of Internal Control – article for Bank of the West newsletter

I wrote an article for Bank of the West called Essentials of Internal Control.  It discusses one superb internal control you should be using for cash, explains that trust is not an internal control, and offers a creative idea to improve control over cash.

A one sentence summary of internal control is at the end of this paragraph:

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Once Upon Internal Control: The Cartoon – chapter 1, bank reconciliations

A cartoon that discusses some internal controls over bank reconciliations in a local church:

[youtube=http://www.youtube.com/watch?v=7KLiK8vNDYs]

The cartoon is based on the book Once Upon Internal Control – A tale of good and bad ways to implement internal controls in a local church, written by James Ulvog, CPA.

If you want more detail, the video above is based on the following selection from the book:

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Illustration of internal control from the Scriptures – one good example and one not so good

Maintain dual control over the offering! You hear that unending refrain from us accountants.

Document those disbursements!  Another routine comment you hear.

One story in scriptures has a good illustration of the first control along with missing the boat on the second idea.  Jehoiada, the priest during the reign of King Joash, did a good job on the dual control over the offering and not so great on accountability for the disbursements.

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New blog – attestationupdate.com

I started a new blog today, Attestation Update, www.attestationupdate.com. It will provide news and updates to the CPA community on audits, reviews, and compilations.  Some posts are only at the new site and some attestation posts will be left here. In the future, posts that are focused more on the CPA community will be at the new site.

Why make this change? I realized there are very two distinct audiences for my writing:  the non-profit community and CPAs. While there is a lot of overlap, particularly with the CPA firms in Southern California with whom I count as friends at the same time as competitors, the interests are very different.  Thus, two blogs.  This will allow for more focused attention by time constrained readers.  Enjoy them both!

How do the three sides of the fraud triangle work together?

As you can see from the previous posts, all three sides of the fraud triangle work together.  A person has to have an opportunity to do something wrong combined with some sort of serious pressure along with a mindset to say that something that previously would have been wrong is now actually reasonable.

Lacking one side would stop the fraud.  (more…)

Rationalize = Rational Lies, along with a theological observation

When a person is rationalizing a situation to convince themselves that it is really okay to do something wrong, they are telling themselves “rational lies”.  Okay, it’s an old joke.  But “rational lies” tells the story in one phrase.

A theological description of rationalization can be found in Jeremiah 17:9, (more…)

Rationalization – the final side of the fraud triangle

The final component needed to complete the fraud triangle is rationalization.  This is the ability to persuade yourself that something you otherwise know is wrong is really OK.  A lot of mental gymnastics are obviously needed to do so, but that is the point.  If a person goes through those gymnastics, than what was wrong before is now acceptable. How can that happen? (more…)