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Statutory Internal Controls

KARA A. MILLONZI

PROFESSOR OF PUBLIC LAW AND GOVERNMENT

UNC CHAPEL HILL SCHOOL OF GOVERNMENT

How to Lose $Employee Mistake

Employee Misappropriation

Employee Fraud

Vendor/Contractor Fraud

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Fiscal Management

What’s your board’s role?

Control Activities

Preventative Detective Corrective

Statutory Control Activities Local Government Budget & Fiscal Control Act

Budgeting

Cash Management

& Investments

Obligating & Disbursing

Public Funds

Accounting & Financial Reporting

Auditing

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Dated Statutes

• Prepares proposed budget

• Executes adopted budget

•Maintains accounting system

• Controls bank accounts•Makes investments

• Approves obligations and disbursements

• Prepares financial reports

• Approves audit contracts

• Reviews audits

• Issues regulations governing financial management

• Provides assistance in financial management

• Approves debt

• Sells debt• Assumes financial control in

extreme circumstances

• Adopts / amends budget

• Sets fiscal policy

• Supervises budget officer

• Selects official depository(ies)

• Contracts for audit/receives audit report

• Requests and reviews financial reports• FIDUCIARY DUTY

Chain of Command?

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Decentralized Units

Budgeting

Cash Management & Investments

Obligating & Disbursing

Public Funds

Accounting & Financial Reporting

Auditing

LGC ReviewSegregation of

DutiesRotation of Duties

Duplication of Duties

Written ProceduresTraining

Independent AuditsBoard Review

Role of ManagementGet TrainedDevelop relationshipsAsk questionsAppoint internal auditor/audit committeeEstablish whistle-blower processReview audits/management lettersSET EXPECTATIONS

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Cash Management

Official Depositories: G.S. 159-31

Governing board selects official depositories

Daily Deposits: G.S. 159-32All moneys “collected or received” by an “officer or employee” of local government or public authority must be deposited daily “with the finance officer or in an official depository” or submitted to a “properly licensed and recognized cash collection service.”

Finance officer must “audit” collections at least once annually

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Petty Cash: G.S. 159-28

Statutory authority to pay with cash, if board adopts policy with sufficient internal controls

But, daily deposit requirement

$500 exception

Obligations and Disbursement

Budget Ordinance /

Project Ordinance

Determine costs of goods

or services

Preauditprocess

Order goods / execute

contracts

Goods arrive / services

performed

Disbursement process

Pay for goods / services

G.S. 159-28

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If finance officer believes that a bill is not payable consistent with G.S. 159-28, the governing board may authorize the payment directly. “The governing board shall approve payment by formal resolution stating the board's reasons for allowing the bill, invoice, or other claim. The resolution shall be entered in the minutes together with the names of those voting in the affirmative. The chairman of the board, or some other member designated for this purpose, shall sign the certificate on the check or draft given in payment of the bill, invoice, or other claim. If payment results in a violation of law, each member of the board voting to allow payment is jointly and severally liable for the full amount of the check or draft given in payment.”

Budget Ordinance /

Project Ordinance

Determine costs of goods

or services

Preauditprocess

Order goods / execute

contracts

Goods arrive / services

performed

Disbursement process

Pay for goods / services

G.S. 159-28

Employee ComplianceSheriff James received $2,665 check made out to “Washington County Detention”

Sheriff deposited $2,000 in Sheriff’s Office bank account and used rest for Sheriff’s Office petty cash

Money used for Sheriff Office purposes

Sheriff did not follow LGBFCA requirements

Jury found Sheriff guilty of EMBEZZLEMENT