4/26/2018

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Breakout Session: Treasury

Presenters

• Chair, Chapter Relations Committee– Jason Minard, CIA

• Midwest District Advisor– Stephanie Jones, CIA

• Northeast District Advisor– Sarah Saunders, CIA, CFSA

• IIA Sr. VP & Chief Financial Officer– Ann Cohen, CPA, CGMA

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Treasury Agenda

• Annual Budgeting, Annual Financial Report, and the Independent Review

• Cash Management Best Practices

• Treasury Controls and Segregation of Duties

Annual Budgeting

• Annually, each Committee determines/estimates the revenue and expense amounts for planned activities

• Treasurer combines all of the individual committee revenue and expense amounts into a Chapter Budget

• Budget is generally prepared during the summer months, is presented to the BOG for their approval, and then submitted to IIA Headquarters (copy DR/DA)

• Budgets are due August 31st

• Supports payments made throughout the year

2018 – 2019 CHAPTER BUDGET

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Annual Budgeting (cont’d)

• Any revisions to the Annual Budget must be presented to the BOG for discussion and approval

• Each chapter should establish dollar limits and who needs to approve expenses

• Financial reports of budgeted revenue and expense amounts and the calculation of variances should be prepared and distributed periodically and discussed

Annual Financial Report

• Annual Financial Report of Chapter Revenue and Expense is prepared by the Treasurer Webinar: Chapter Treasurer

• Includes the Statement of Financial Position, Statement of Changes in Net Assets, and Statement of Cash Flow

• Signed by the Independent Reviewer prior to submitting to IIA Headquarters (copy DR/DA) Webinar: Independent Validation

of Financial Records (please

provide link to Independent

Reviewer prior to them

performing the independent review)

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Annual Financial Report Template

Annual Financial Report Template (cont’d)

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Annual Financial Report Template (cont’d)

Annual Financial Report Template (cont’d)

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Annual Financial Report Template (cont’d)

Annual Financial Report Template (cont’d)

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Annual Financial Report Template (cont’d)

Annual Financial Report Template (cont’d)

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Independent Review

• Usually performed as soon as the treasurer has officially completed and closed the books and records for the Chapter year

• Prerequisite to receiving the Chapter Allotment

• Each Chapter is required to have an Independent Review which helps ensure the accuracy of the Annual Report of Chapter Revenue and Expense

• Independent Review is due August 31

• Also includes a review of the Chapter control structure including SOD and should include recommendations for improvement

2017 2018

Annual Review of Revenue and

Expenses

Independent Review (cont’d)

• Provides reasonable assurance that the financial records are accurate and reasonable controls are in place

• The Treasurer’s Manual has a suggested program for the Independent Review

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Qualities of Independent Reviewer

• Independent from the treasury function (no treasury responsibilities or check signing authority, nor potential conflicts due to their role outside of the IIA)

• Has the necessary competence and objectivity to perform an effective audit (preferably a CIA or CPA)

• Not an Officer or Governor of the Chapter

Importance of ChapterFunds Management

• Supports fulfilment of mission and fosters strategic objectives

Non-profit does not mean no surplus allowed

• Assists in maintaining a sound and sustainable organization

• Provides financial flexibility Provides for handling emergencies and

seizing opportunities

• Demonstrates prudent management

and planning

• Fosters positive perception of the

organization and limits potential reputational risk

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IIA Chapter Cash Reserve Guidance

Chapter Manual includes guidelines on cash balances based on a percentage of operating expenses and cash/member:

• CASH BALANCE AS A PERCENTAGE OF ANNUAL OPERATING EXPENSES:

– Minimum: 25% to 50% of operating budget

– Maximum: 80% to 120% of operating budget

• CASH ON A PER MEMBER BASIS:

Appendix 37 of the Chapter Manual also includes additional guidance for developing a funds management policy and procedures.

CHAPTER SIZEAVERAGE CASH

PER MEMBER RANGE – LOW RANGE – HIGHUnder 100 members $112 $55 $170100 – 249 members $100 $40 $150250 – 500 members $90 $30 $135Over 500 members $60 $30 $90

Types of Cash Reserves

Net Assets

Available Assets

Current Operating Funds

(current working capital and board designated

operating reserve)

Restricted (or Quasi-Restricted) Funds

(Board Designated Special Purpose

Reserves)

Unallocated

(Excess Reserves)

Not Available

(Equity in Fixed Assets)

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Reporting of Cash Balances

• Cash balances should be reported in revised annual financial report.

• Board designated special projects above the operating reserve target should be tracked and managed.

Chapter Cash ManagementBest Practices

• Establish a target level of operating reserves with the Board

Operating Reserves % = Unrestricted Assets / Annual Operating Expense Budget

• Develop a forecast with potential risk scenarios

• Adopt a formal chapter reserves policy

• Board review and approval of annual report and budget

Ensure discussion of planned surpluses and shortfalls related to cash position

Create a budget item specifically to add/reduce reserves

• Designate a Finance Committee on the Board to oversee reserves

• Develop a formal approval process when spending designated funds

• Ensure funds are kept in liquid, safe instruments

• Provide transparency on chapter reserves target and financial position

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Ideas for Use of Excess Funds

• Hold networking events or member recruitment events

• Sponsor local CIA review classes

• Sponsor local students intern programs and scholarships

• Partner with a education institution to develop an IAEP program

• Purchase professional products for member use (books, etc.)

• Fund a local research project

• Donations to fund new chapter formation

• Contributions to Internal Audit Foundation, Academic Advancement Fund or other industry initiatives

• Sponsor membership to educators or students

• Provide scholarships for members to attend IIA events

• Create a formal endowment

Chapters may wish to consult their District Representative, District Advisor and/or Chapter Relations for further guidance.

Group Exercise:Funds Management

• What approaches does your chapter take to financial management and strategic planning? How does the Board set the financial direction of the chapter and ensure it is meeting the chapters mission?

• What are some of the challenges / best practices used?

• What suggestions do you have for Chapters that may be struggling to maintain adequate reserves? What about for chapters that have excess reserves?

• What other guidance or tools does your Chapter need to be better prepared to manage their finances?

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External Resources

Whitepapers:

https://www.nonprofitaccountingbasics.org/sites/default/files/01-OperatingReservesWhitePaper2009.pdf

https://www.grantthornton.com/~/media/content-page-files/nfp/pdfs/2013/130516-NFP-Reserves-Planning-White-Paper-130916.ashx

Reserve Policy Toolkit:

http://www.nccs2.org/wiki/images/b/b4/Operating_Reserves_Policy_Toolkit_1st_Ed_2010-09-16.pdf

Treasury Controls

A few examples:

• Produce financial reports on a regular basis

• Reconciliations are a key detective control

• Require verbal contact/confirmation for disbursement requests of certain transactions

• Review signature cards and other means of providing account access on an annual basis

NOTE: The full list of Best Practices for Internal Controls can be found in the Chapter Manual - Appendix #34.

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Segregation of Duties

• Chapter duties should be segregated so that no one individual has the ability to do all or multiple activities as summarized below:

– Custody or access to chapter assets

– Authorization or approval of transactions affecting chapter assets

– Recording and reporting of transactions

• Not a ‘one size fits all”

• Based on size, structure, volume of transactions

Safe Guarding Chapter Assets

• Chapter Leaders should: – Demonstrate responsible cash management

– Exercise good judgment in holding and preserving chapter funds

• IIA strongly recommends each chapter should: – Have an audit committee (members should not be an

officer or governor)

• Annual requirement for independently reviewed financial statements

• Have an adequate verification process for disbursement requests to prevent external fraud

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Group Exercise:Chapter Financial Controls

• How does your chapter ensure controls are properly segregated?

• What policies and controls do you have in place to ensure disbursements are properly authorized?

• What risk assessment and oversight has the board performed to analyze the chapter’s financial controls?

Open Discussion