How to Develop a Project Charter

pmsouth.com
July 26, 2014

My twin brother, Harry Hall, shares how you can develop a project charter, a key step in project management. So if you are anticipating a key project, such as implementation of new tax software or maybe your firm is going paperless, here’s information to help you along your way.

He offers a free project charter template for your use.

Click the title link above to see the post.

Bluetooth Shoes?

I know Elvis sang about blue suede shoes, but who will croon about bluetooth sneakers?

Wearable technology continues to make strides, now with bluetooth enabled shoes.

Google has glass.

Apple is coming out with iWatch.

And now, according to the Wall Street Journal, “Indian startup Ducere Technologies Pvt. is going to start selling its Bluetooth enabled Lechal shoes for more than $100 a pair in September. The shoes sync up with a smartphone app that uses Google maps and vibrate to tell users when and where to turn to reach their destination.”

The shoes vibrate when you need to turn; for instance, your right shoe will vibrate when you need to turn right. I would think this would be a God-send for the visually impaired.

The Wall Street Journal article went on to say, “While testing the shoes, the company realized its potential for the sighted as well. For example  joggers, mountain bikers or even tourists can plug in their destinations and not have to stop to check their phones as they move because the buzzing in their shoes will let them know when to turn.”

Maybe we can now find our new clients’ offices. Wouldn’t that be interesting, your entire audit team showing up in these red bluetooth shoes. Toto, I’ve got a feeling, we’re not in Kansas any more.

Fraud Prevention for Small Governments

Below I provide fraud prevention steps that you can take to protect your government

Many small governments suffer losses from theft since they lack a sufficient number of employees to segregate accounting duties. There are, however, steps you can take to protect your resources. In this post, I provide ideas for fraud prevention in small governments.

Most government officials don’t realize that external audits are not designed to detect immaterial fraud (immaterial can be tens of thousands of dollars – sometimes even more). Such officials incorrectly believe that a clean opinion means no fraud is occurring in their locale – this is a mistake. External financial statement opinion audits are not designed to look for fraud at immaterial levels. Even if your government has an external audit, consider implementing fraud prevention procedures.

fraud prevention for small governments

In a typical small government accounting setting, the city of In Between (as in between two stop lights) (population 1,202) has a mayor and three council members. The city has one bookkeeper (we’ll call him Dale) who orders and receives all purchased items; he writes all checks, reconciles bank statements, and keys all transactions into the accounting system. Dale also receipts all collections and makes all deposits. Mayor Chester signs all checks (vendor and payroll). (In a long-standing tradition, the mayor also graces the city Christmas parade float as Santa Claus.) With so little segregation of duties, what can be done?

The smaller the government, the greater the need for fraud prevention – even if Santa Claus in involved. And yet, these are the governments that most often don’t have the resources–whether the money to pay for outside assistance or employees to segregate duties–to prevent fraud. Here are few ideas for even the smallest of governments.

Low-Cost Fraud Prevention

First, let’s look at low-cost fraud prevention options:

  • Have all bank statements mailed directly to Mayor Chester who will open and inspect the bank statement activity before providing the bank statements to Dale; alternatively, provide online access to Mayor Chester who reviews bank statement activity and signs a monthly memo documenting his review
  • Once or twice a year, have council members pick two months at random (e.g., May and September) and review key bank statement activity (e.g., the operating and payroll accounts)
  • Once or twice a year, have council members randomly select checks (e.g., ten vendor checks and ten payroll checks) and review supporting documentation (e.g., invoices and time sheets)
  • Once or twice a year, have the mayor and council review receipt collections and related documentation (e.g., for two days deposits); agree receipts to bank deposits and to the general ledger
  • Provide monthly budget to actual reports to mayor and council
  • Provide monthly overtime summaries to mayor and council
  • Do not allow Dale to sign checks
  • Require two signatures on checks above a certain level (e.g., $5,000); have two of the council members (in addition to the mayor) on the bank signature cards; supporting documentation (e.g., invoice) should be provided to check signers for review
  • Require Mayor Chester and Dale to authorize any wire transfers
  • Have Dale provide the mayor with monthly bank reconciliations; the mayor should document (e.g., initial the reconciliation) his review
  • Don’t provide Dale with a credit card
  • If Dale is provided a credit card, provide him with one card; use a low maximum credit limit (e.g., $1,000); Dale’s credit card statements should be provided to the mayor when he signs the related check for payment
  • Use a centralized receipting location (if possible); receipts should always be written upon collection of a payment

Higher Cost Fraud Fraud Prevention

Now let’s examine some higher cost options (that are probably more effective):

  • Have an outside CPA or Certified Fraud Examiner (CFE) perform the receipting and payment tests listed above
  • Have an outside CPA or CFE map your internal control system and make system-design recommendations
  • Have an outside CPA or CFE make surprise unannounced visits (e.g., two per year) to examine the receipting system, payroll, and the payment system; at the beginning of the year, tell Dale that the surprise visits will occur (details of what will be tested should not be communicated to Dale)
  • Install a security camera to record all of Dale’s collection and receipting activity
  • Purchase fidelity bond to cover elected officials and Dale

Keep in mind that you can limit the cost of the outside CPA; simply include contract limits for the project; the contract might read Surprise audit of vendor payments with cost limited to $1,500. Try to contract with a CPA or CFE with governmental experience. The surprise audits and the fidelity bond recommendations are, in my opinion, the most critical steps.

Some states like New York audit local governments for fraud; consequently, if your local government is frequently audited by a state agency, there may be less of a need to hire an outside CPA or CFE to perform fraud prevention procedures.

Additional Fraud Prevention Resources

Click here for a list of local government controls to consider.

For additional insights into preventing fraud in your government, get The Little Book of Local Government Fraud Prevention on Amazon.

The above picture is courtesy of iStockphoto.com.

Dating Audit Representation Letters

What are some common problems with the dating of audit representation letters?

  • Representation letters sometimes have conflicting dates
  • The letter may be mistakenly dated prior to audit file reviews
  • The letter may be mistakenly dated prior to management’s review of the financial statements

Why do representation letters have conflicting dates?

Auditors often place a date (e.g., September 10, 2014) on the first page of the letter and then include a blank date line–under the signer’s name–on the last page. Consequently, the signer may add a date different from that on the first page (e.g., September 14, 2014).

How can I avoid the conflicting date issue?

Type the date on the first page of the representation letter, and do not provide a blank date line for signers.

What date should I use?

  1. Use a date concurrent with completion of the client’s review of the financial statements.
  2. Also the representation letter date should not precede the date of your final audit file reviews (which marks the completion of accumulating evidential matter to support the opinion). Check your audit file for final review dates prior to dating the representation letter; these reviews are normally performed by the engagement partner or quality control. Use a representation letter date concurrent with or after the date of the final review.

Livescribe 3 Smartpen — A Review

Have you ever tried to take notes and could not keep up with the speaker? Maybe you felt sick because you knew you had missed important information. Using a Livescribe pen, you can ensure you never miss another word–ever.

You may have read my previous post about the Livescribe Echo pen.  I recommend the Echo pen for those of you not using an iPad. But if you have an iPad, consider the Livescribe 3 Smartpen.

Here’s a quick review of the Livescribe 3 Smartpen.

I am using my Livescribe pen for the following purposes:

  • Fraud interviews
  • Office meetings
  • CPE classes
  • Audit walkthroughs

New Three Page IRS Tax Exempt Application

The IRS has issued a new three page tax exempt application (form 1023-EZ) for 501(c)(3) status. The existing long form 1023 is twenty-six pages. The organization must have receipts equal to or less than $50,000 and assets of $250,000 or less to be eligible. The IRS is saying that as many as 70% of all applicants will qualify for use of the shorter form. The EZ form must be filed online and there is a $400 fee. The IRS instructions are here.

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Business Process Software: Bizagi Process Modeler

Have you ever needed business process software but you didn’t want to shell out the big bucks for the purchase? Your reluctance may be based on your expected use of the product. Maybe you need to map only three or four business processes. Consider using Bizagi Process Modeler.

Here’s a look.

If you have an interest in business process mapping, see my brother’s blog post titled: How Process Mapping Saved the Day.

Accounting and Review Services Committee Meeting August 19-21, 2014

Could new compilation standards be on the horizon? I think yes–and very soon.

You will recall from my previous blog post, these changes will be significant.

The AICPA Accounting and Review Services Committee (ARSC) met May 20-22, 2014 to discuss the following exposure drafts:

  • Preparation of Financial Statements
  • Compilation Engagements
  • Association with Financial Statements

ARSC received and reviewed feedback from the exposure drafts in the May 2014 meetings.

ARSC is scheduled to meet again August 19-21, 2014. I have the agenda for that meeting and it appears ARSC is still pursuing the issuance of these standards. Given the changes made to the independence standards by the Professional Ethics Executive  Committee (PEEC), I expect to see these ARSC standards issued soon. The PEEC changes are effective for years beginning on or after December 15, 2014.