Internal controls are procedures designed to protect a relief association from loss or misuse of its assets. Sound internal controls help ensure that transactions are properly authorized and the information contained in the financial reports is reliable.
Segregation of duties is an important internal control intended to prevent unauthorized transactions. Recommendations for segregating duties include having an individual other than the relief association’s treasurer receive and review unopened bank statements, reconcile the bank accounts, and review cancelled checks for unusual activity.
Reconciling the bank accounts means that a relief association trustee, such as the secretary, reviews the income and expenses the bank has recorded on its statements and compares them with what the treasurer has recorded in the relief association’s checkbook or accounting program.
Examples of “red flags” that would merit further review include any discrepancies between bank statements and the checkbook or accounting program, receipts not matching deposits, disbursements to unknown or unapproved vendors, one signature on checks or presigned blank checks, and gaps in receipt or check numbers.
Another important component of a strong control environment is the prohibition of the use of relief association funds for any personal reason—even in an emergency. It is not acceptable for relief association members or trustees to “borrow” funds temporarily from relief association funds. No “I.O.U’s” should be allowed—ever.
Relief association members and trustees are required by law to promptly report evidence of theft or misuse of public funds to law enforcement and to the OSA.
A relief association should discuss internal controls with its auditor, who may have additional helpful suggestions based on his or her experience with the specific association.
A Statement of Position is available on the OSA website that provides more information on the importance of internal controls.
Published last in the April 2017 Pension Newsletter