CONDUCTING AN FINANCIAL REVIEW
Auditing involves examining financial records and transactions to ensure that receipts have been properly accounted for and expenditures have been properly authorized and recorded, in conformity with PTA bylaws, standing rules and budget limitations.
Your PTA’s bylaws should indicate who, when and how an audit is to be conducted and reported to the membership. Financial records should be reviewed at least once a year – some state PTAs require two or more financial reviews annually. Books should also be reviewed if a financial officer resigns (see Final Steps before Leaving Office Checklist), before the new officer assumes his or her duties, and at any other time deemed necessary.
You have several options for how to complete an examination of the financial statements and records. The first option is the least expensive:
• Internal financial review is conducted by an internal committee. This committee should not include anyone with signature authority over the PTA’s bank account or any relatives to a person with signature authority. The committee periodically reviews all of the Treasurer’s records for errors. Check with your state PTA to determine if they offer support for internal financial reviews.
The remaining three options require retaining a professional firm with nonprofit accounting experience. Laws in several states require 501(c)(3) organizations to hire a professional firm to complete the audit when gross income exceeds a certain amount. Be sure to check the laws in your state or talk with your state PTA about your unique circumstances. You will hire a firm to:
• Compile financial statements. The CPA receives financial information from the client, reviews it for obvious errors without verifying the facts or tracing the transactions, and prepares financial statements using the information provided. Upon completion, a report is issued that states a compilation was performed in accordance with professional standards, but no assurance is expressed on the statements.
• Review financial statements. The CPA performs inquiry and analytical procedures in addition to the procedures described above for a compilation. Upon completion, a report is issued stating that a review has been performed in accordance with professional standards, that the review conducted was less rigorous in scope than an audit, and that the CPA did not become aware of any material modifications that should be made in order for the statements to be in conformity with generally accepted accounting principles.
• Audit financial statements. This would be most appropriate for state PTAs, very large PTAs or PTAs that are required to obtain external audits due to requirements from grantors. In an audit, the CPA performs all of the steps indicated above, as well as additional confirmation, verification and substantiation procedures. When the audit is complete, the CPA expresses an opinion that the financial statements present fairly the entity’s financial position and results of operations. This would be considered a “clean” opinion.
INTERNAL FINANCIAL REVIEW
10 Steps for Conducting a PTA Financial Review
Shortly before the end of your Treasurer’s term or at the end of the fiscal year, it is important to conduct a financial review of the Treasurer’s records. Take these 10 simple steps for success.
Step 1: Recruit an internal committee. Your financial review committee should not be anyone with check signing authority.
Step 2: Provide committee with Treasurer’s records including:
• A copy of the last financial review report
• Checkbook and canceled checks
• Bank statements and deposit receipts
• Treasurer’s book or ledger
• The annual financial report
• Itemized statements and receipts of bills paid
• Check requests
• Copies of Board, executive committee, and association minutes that would include an adopted budget, as well as any amendments that were approved during the year
• Current bylaws and standing rules
• Any other information requested by the financial review committee
Step 3: Explore the records posted after the last financial review or financial audit. Check to see if the amount shown on the bank statement corresponds to the starting balance recorded in the checkbook and ledger.
Step 4: Explore a sampling of transactions. The size of this sample should be based on the size of the association. If mistakes are found, the sample should be broadened to take in more transactions. You may need to review all the transactions of a PTA. Consider retaining an external auditor if there are numerous errors or concerns regarding accuracy. Some items to look for:
• Monthly bank reconciliation
• Unexplained reconciling items
• Unusual endorsements on checks
• A match of check endorsements to payees
• Disbursements not supported by invoices or other documentation
• Blank checks secured in a safe place
• Deposit ticket dates timely with dates received by bank
• Timeliness of deposits based on known dates of events • All invoices paid by check and not cash
Step 5. Ensure accurate disbursements. Make certain that money collected for a specific purpose (special projects, gifts, scholarship funds, council dues, etc.) has been disbursed for that purpose. This includes keeping state and national portions of the membership dues separate from other receipts and remitting these portions to the state office monthly.
Step 6. Check the Treasurer’s reports and annual report for accuracy.
Step 7. Collaborate with Treasurer and President to correct errors. After errors have been corrected by the Treasurer, and the President is satisfied that the financial accounts are correct, sign and date the annual report using a different color ink: “Examined and found correct. (Name), (Date).”
Step 8. Prepare financial review results. The financial review committee also must submit a report documenting their efforts and sharing results. When there are not adequate records available to conduct a proper accounting of the association’s funds, sample statements might read:
• CORRECT: The financial review committee has examined the records of ABC PTA for the period of (time covered) and found them to be correct. Balance on hand: $(Amount). (All committee members sign)
• NOT CORRECT: The financial review committee has examined the records of ABC PTA and found that more adequate accounting procedures need to be followed so a more thorough financial review can be given. (The financial review committee should indicate the information that is needed). (All committee members sign)
Step 9. Submit report to board or membership. The financial review must be officially adopted by your PTA and must be included in a completed annual report covering the association’s entire fiscal year. If the report states that additional information and verification is needed, the requested information should be provided by the Treasurer.
Step 10. Contact your state PTA or a CPA if questions remain. If the validity of the financial review is questioned, an independent certified public accountant (CPA) should be engaged. At any time during the process, contact your state PTA for information or assistance.
This information was adopted from National PTA's Official Local Leader Kit -
FINANCE QUICK REFERENCE GUIDE
Submit the finanical annual review/audit of financial records
within 120 days after the end of the fiscal year