Auditing AdHoc Team Guidelines
PURPOSE: The purpose of this document is to provide auditing
criteria and guidance to the Rappahannock Area Service Committee
of Narcotics Anonymous (RASCNA) Auditing AdHoc Team. These
guidelines and concepts are based on pre-existing standardized
accounting and auditing procedures. Therefore, this guidance
should provide adequate written standardized auditing procedures
that can be followed step-by-step during the auditing process.
It is deemed feasible that an audit should occur on a quarterly
basis of RASCNA financial and non-financial operational
activities. Hopefully, this carefully thought out guidance can
be reviewed and approved for dissemination and use by RASCNA
Internal Auditing AdHoc team members.
OBJECTIVE: The objective of this auditing team is to determine
if management oversight is conducted to ensure RASCNA policies
and procedures are followed. To determine if all financial
safeguards and cash flow activities are made with appropriate
signature authority, proper supporting documentation, and
administrative record management in accordance with applicable
By-Laws and Treasurer Handbook statutes and requirements.
The auditing team will report any discovered areas of exception
(error or theft) in the most efficient and timely manner by
providing two levels of comprehensive functionality to meet
RASCNA needs:

To ensure compliance with proper internal control
safeguards such as adherence to policies and procedures;
segregation of duties, physical security, and proper
authorizations and approvals.

To minimize and identify immediately any compromise to the
integrity of the financial accounting system.
SCOPE: To perform a detailed evaluation and review (audit) of
the monthly Balance Sheet, Bank Statement, Deposit Tickets,
Check Register, and Receipt Ledger. The audit team will
follow the audit trail through the duration of the total
1
reconciliation life cycle step-by-step. The life cycle
consists of: 1) Cash Flow Management; 2) Matching;
3) Reconciliation; 4) Exception Resolution; 5) Reporting;
6) Archiving and 7) Compliance in Figure 1 below.
Total Reconciliation Life Cycle
Cash Flow
Management
Compliance
Matching
Archiving
Reconciliation
Expection
Resolution
Reporting
Figure 1
Cash Flow Management
The Area Chairperson is the one central appointed custodian over
all Area cash flow. The Treasurer acts on behalf of the Area
Chair. Therefore, it is the Treasurer duty to manage all
financial transactions, account balances, electronic data,
supporting documentations, and non-financial data such as
various reports. The Treasurer Handbook provides guidance that
will allow the trusted servant to execute the treasurer’s duties
in total simplicity without compromising functionality.
2
The present Treasurer provides management for accounting systems
that embody a very specific audit trail documenting all RASCNA
transactions and balances. They are the General Ledger
Accounts, Balance Sheet, Cash Receipt Ledger, Check Ledger,
Deposit Ledger, and Bank Reconciliation Ledger. The audit teams
should commence the audit by performing Matching of these
various ledgers.
Matching
Matching should occur between the Bank Statement, the Bank
Account, the Treasury Record Ledgers, and Treasurer Reports.
Banks usually maintain a record of all checking account
transactions. A summary of all transactions, called a statement
of accounts, is mailed to the depositor, usually each month.
Like any account with a customer or a creditor, the bank
statement shows beginning balance, additions, deductions, and
the balance at the end of the period.
In the spirit of simplicity, the treasurer is referred to as the
“depositor”. The depositor’s checks received by the bank during
the period may accompany the bank statement, arranged in the
order of payment. The paid checks are stamped “Paid”, together
with the date of payment. Other entries that the bank has made
in the depositor’s account may be described in debit or credit
memorandums enclosed with the statement.
You should note that a depositor’s checking account balance in
the bank records is a liability with a credit balance. Debit
memorandums issued by the bank on a depositor’s account
therefore decrease the depositor’s balance. Likewise, credit
memorandums increase the depositor’s balance. A bank issues a
debit memorandum to charge (decrease) a depositor’s account for
service charges or for deposited checks returned because of
insufficient funds. Likewise, a bank issues a credit memorandum
when it increases the depositor’s account for collecting a note
receivable for the depositor, making a loan to the depositor,
receiving a wire deposit, or adding interest to the depositor’s
account.
Bank Accounts are our primary tool used to control our cash
flow. For example, our Area often requires that all cash
receipts be initially deposited in a bank account. Likewise,
RASCNA usually use checks to make all cash payments, except for
very small reimbursable amounts. When such a system is used,
3
there is a double record of cash transactions—one by the Area
Treasurer and the other by the bank.
Matching a bank account and a RASCNA treasury records is an
excellent safeguard to have in place because it provides a
double check of records of all cash transactions. The audit
team can then use the bank statement to compare and match cash
transactions recorded in its accounting records to those
recorded by the bank.
The cash balance shown on the bank statement is usually
different from the cash balance shown in the Area Treasurer’s
accounting records. This difference may be the result of a
delay by either party in recording transactions. For example,
there is a time lag of one day or more between the date a check
is written and the date that it is presented to the bank for
payment. If the depositor mails deposits to the bank or uses
the night depository, a time lag between the date of the deposit
and the date that it is recorded by the bank is also probable.
The bank may also debit or credit the depositor’s account for
transactional fees about which the depositor will not be
informed until later.
Matching is useful in revealing differences that may be the
result of errors made by the either the Treasurer or the Bank in
recording transactions. For example, the Treasurer may
incorrectly post to the cash ledger a check in the amount of
$450 as $4,500. Likewise, a bank may incorrectly record the
amount of a check deposit in the amount of $4,500 instead of the
amount of $450. Without the Matching process, these errors may
never be detected until one day Area receives a NSF fee from the
bank.
Reconciliation
Bank Reconciliation is important because it provides effective
control of cash inflows and outflows. There usually will be a
difference balance between the treasurer’s cash balance and the
bank’s balance.
Therefore, the reasons for the difference
between the cash balance on the bank statement and the cash
balance in the accounting records should be determined by
preparing the bank reconciliation. The bank reconciliation is a
listing of the items and amounts that causes the cash balance
reported in the bank statement to differ from the balance of the
cash account in the ledger.
4
The bank reconciliation is usually divided into two sections
(Step 1 and Step 2 below). First section begins with the cash
balance according to the bank statement and ends with the
adjusted balance. The second section begins with the cash
balance according to the depositor’s records and ends with the
adjusted balance. The two amounts designed as the adjusted
balance must be equal. Included a step-by-step detailed listing
of the procedures involved in Figure 2, which is an example of
the bank reconciliation as shown below.
Step 1.
Balance per bank statement on Aug. 31, 2011
$ 3,490
Adjustments:
0
Deposits in transit
+ 1,450
Item #9
Outstanding checks
– 3,221
Item #8
Bank errors
Step 2.
Item #1
0
Adjusted/corrected balance per bank
$ 1,719
Balance per books on Aug. 31, 2011
Adjustments:
$
967
Item #7
Bank service charges
NSF checks & fees
–
–
35
110
Item #2
Item #3
Check printing charges
–
80
Item #4
Interest earned
+
8
Item #5
Note Receivable collected by bank
+
960
Errors in company's cash account
+
9
Item #6
Item
#10
Adjusted/corrected balance per books
$ 1,719
Figure 2
These steps may be useful in finding the reconciling items and
determining the adjusted balance of the monthly cash flows:
1. Compare each deposit listed on the bank statement with
unrecorded deposits appearing in the preceding period’s
reconciliation and with deposit receipts or other records of
deposits. Add deposits not recorded by the bank to the
balance according to the bank statement.
2. Compare paid checks with outstanding checks appearing on the
preceding period’s reconciliation and with recorded checks.
Deduct checks outstanding that have not been paid by the bank
from the balance according to the bank statement.
5
3. Compare bank credit memorandums to entries in the journal.
For example a bank would issue a credit memorandum for a note
receivable and interest that it collected for a depositor.
Add credit memorandums that have not been recorded to the
balance according to the depositor’s records.
4. Compare bank debit memorandums to entries recording cash
payments. For example, a bank normally issues debit
memorandums for service charges and check printing charges. A
bank also issues debit memorandums for not-sufficient-funds
checks. A not-sufficient-funds (NSF) check is a customer’s
check that was recorded and deposited but was not paid when it
was presented to the customer’s bank for payment. NSF checks
are normally charged back to the customer as an account
receivable along with a $25.00 fee. Deduct debit memorandums
that have not been recorded from the balance according to the
depositor’s records.
5. List any errors discovered during the preceding steps. For
example, if an amount has been recorded incorrectly by the
depositor, the amount of the error should be added to or
deducted from the cash balance according to the depositor’s
records. Similarly, errors by the bank should be added to or
deducted from the cash balance according to the bank
statement.
Exception Resolutions
An exception resolution is the process to be taken should the
audit reveal mistakes, mathematical errors, or the occurrence of
fraud or theft. There will be ZERO tolerate of theft of “7th
Tradition” basket monies. The primary goal of transactional
matching and balance reconciliations is to minimize the number
of exceptions and to identify immediately any risk of compromise
to Area cash flow. Unfortunately exceptions happen. The
exception resolution method will provide speed and ease for
resolving mistakes or errors and assist in minimizing and
addressing inherent areas of risk to cash flow integrity and
management in the most effective and timely manner.
Should the audit discover evidences to support possible theft or
fraudulent actives of any kind, the perpetrator will be
6
prosecuted by the Law to the fullest extent possible. The Area
Chairperson is appointed as the sole custodian over all RASCNA
cash flow (inflows and outflows). The Chair receives ALL monies
from GSR and committee members and then passes the monies to the
Vice-Chair or the Treasurer. With this specific intake process
in place, the Chair as a United States American citizen has the
right to press charges in his or her name for any crimes
committed against their person. This would alleviate any
involvement or mention of the Narcotics Anonymous Fellowship
throughout the duration of the entire legal process.
Reporting and Archiving
The Treasurer trusted servant thoroughly understands the
accounting and bookkeeping of the financial system’s
functionality. The treasurer is the initial and central
financial data collection point who is responsible for
collecting, summarizing, and reporting data of all cash flow
transaction on a monthly basis. In light of this it is
imperative that a monthly report from the Treasurer’s viewpoint, be written, verbally presented, and then archived in a
safe and accessible location. Each monthly report is considered
as non-financial information. The auditing team should confirm
that the financial data in the report is accurate and true.
Due to the high cost involved with outsourcing a team of
auditors, developing and utilizing an “internal” auditing team
is a valuable solution in providing RASCNA’s auditing
functionality needs. Area’s Internal Audit AdHoc team shall
consist of at least four (4) members. One of these four team
members shall be knowledgeable of standardize accounting and
auditing procedures. Either the RASCNA Administrative Chair or
Vice Chair shall be a member. Also, there shall be at least two
members of the Fellowship with at least six (6) months or more
uninterrupted clean-time. Each internal quarterly audit shall
be performed using a quick and non-biased approach. This team
shall be responsible for performing, documenting, and producing
a written report.
7
Compliance
The compliance portion the audit examination is one of the most
important elements of the audit observation, review, and
evaluation process because it ensures compliance with the RASCNA
policies which ensure good financial governance.
1
2
3
4
5
6
7
8
COMPLIANCE AUDIT
Treasurer meets minimum four (4) years clean-time requirement.
Treasurer meets two (2) years Area-level experience requirement.
Treasurer's provided services are within the two (2) year term
requirement.
There is a Vice-Treasurer "in training".
The Chair is the one central appointed custodian of the all Area
funds. (The Treasure only acts on behalf of the Area Chair.)
Each of the Group Service Representative (GSR) and
Committee member donations and monies are given directly to
the Chair (or Vice-Chair only in the Chair's absence) not to the
Treasurer.
Chair (or Vice-Chair) then gives collected monies directly to the
Treasurer who acts on behalf of the Chair.
There are three (3) co-signers on the Area’s bank account.
9
Treasurer presents a report along with supporting
documentation, such as receipts and disbursements, at each Area
meeting.
10
The Treasury Report is reviewed and approved at each monthly
meeting by the Area GSRs.
11
All monies are deposited into the Area’s bank account within
five (5) business days.
12
All check expenditures and payments have three Trusted
Servants signatures.
13
All available Area funds have been disbursed as directed in
accordance with Area motions and policy guidelines.
14
There are written receipts for all monies received on behalf of
the Area.
15
16
17
Weekly budget review meeting is facilitated in October of each
year.
An Annual Budget was submitted at November’s Area meeting
A Quarterly Audit has been performed this quarter.
18
Audit AdHoc Committee presented a written Quarterly Report
to Area.
Figure 3
8
YES
NO
The audit team should question members of the Areas
Administrative body to answer the 18 questions listed in Figure
3 above. Determination of compliance will be noted with a “Yes”
answer and determination on noncompliance with will be noted
with a “NO”. All noncompliance should be reported and
recommendations made by the audit team using the “Exception
Resolution” method mentioned earlier in this document.
Summary and Conclusion
This document has provided auditing criteria and guidance to
fulfill RASCNA internal auditing needs. These guidelines and
concepts are based on pre-existing standardized accounting and
auditing procedures. This simple and explicit guidance has been
reviews and found to be adequate as written standardized
auditing procedures to be used during the Area internal auditing
process. It has been determined that an audit should occur on a
quarterly basis of RASCNA financial and non-financial
operational activities. Thus, this guidance is being
disseminated for use by RASCNA Internal Auditing AdHoc team
members.
9