Internal Controls for Schools: Trust versus Fiduciary Responsibility

by John Vegt, SCSBC Director of Finance  ◊  

At our recent SCSBC Finance, Business Management and Development Conference some discussion took place regarding internal financial control procedures within our Christian schools. Our schools have a rich history: many were established without much money, had a presumption of trust in financial matters, and held a deep conviction that education must be taught from a Christian perspective.

So why worry too much about proper procedures and internal financial controls? Some school boards thought that nothing major has ever gone wrong; therefore our schools should spend our precious funds on distinctive Christian education and keep the financial administration of schools to a bare minimum.

Previously, most SCSBC schools had few tools to monitor the financial affairs of the school. It may have been as simple as requiring two signatories for a cheque and producing monthly and year end financial statements. And having two members of the school society reviewing the financial records on an annual basis, considering this an “audit”. Many thought “Why go much beyond that?”

What has changed today? The combined operational budgets of our 45 SCSBC schools now account for $75.7 million in revenues and $74.3 million in expenses. This is a significant amount of money. There are now many reporting requirements from our banks, different levels of government and our society membership.

Are our school boards confident that school assets are safeguarded against waste, inefficiency and fraud; that financial data is accurate and reliable; that procedures are in compliance with approved policies and that operations are run efficiently? These are important questions for every school board to consider. School board members and administrators need to ask whether fiduciary responsibility is exercised and whether minimum standards to be covered under the school’s director and officer liability coverage have been satisfied.

What should occur with regards to internal controls? How does a school board and administrator know if they are in place?

Internal control problems may come from any one of the following examples:

• Lack of segregation of duties: one person who performs a full cycle of cash receipts, banking, bank reconciliation and recording of revenue
• Not matching supplier invoice/contract with receiving report and purchase order before cheque payment is made
• Failing to establish a write-off policy for unpaid tuition
• Insufficient detailed chart of accounts
• Poor budgeting assumptions and no detailed backup worksheets
• Inappropriate approvals for payroll and benefit changes
• Not using pre-numbered documents for cash receipts, tuition invoices and cheques

There are dozens more.

One of the main ways to know whether internal controls are in place and followed is to document what the schools internal controls are; establish who is responsible for each control and to document tasks within job descriptions for those involved in the financial matters of the school.

Over the course of the next six months, SCSBC intends to develop a typical set of internal financial controls for our Christian schools. Look for it, implement it and modify it for your school’s specific situation. A good set of internal controls should allow the principal, treasurer, finance committee and school board to know that a system is in place to safeguard assets, to ensure financial data is accurate, policies are followed and financial operations are efficient.

Let’s use preventive medicine rather than reactive medicine for our schools; let’s develop and document the internal controls. And while we are at it, let’s celebrate the work of the many business managers, bookkeepers, treasurers and finance committees that make our schools tick financially.