Strong internal controls serve as a foundational first step toward accountability for an association’s finances. For volunteer-managed associations, the implementation of strong financial controls can be difficult. A lack of time and expertise as well as the location of members across a wide geographical area can present major hurdles. Association Management Companies (AMCs), in contrast, can provide the centralization of expertise and resources to make an association’s finances secure and streamlined.
Checking and Balancing Revenues and Disbursements
Checks and balances are a cornerstone of financial accountability when it comes to revenues and disbursements. On the revenue-side, an AMC’s database of its members can provide an excellent secondary, “checks and balances” means of ensuring proper handling of revenue, when used in conjunction with recording revenues in the finance software system. Entering revenues into more than one system reduces the risk of misappropriation by allowing an internal monthly reconciliation process with different staff members reconciling the bank statement with the financial software and the financial software against the database. A final review by a third person is also recommended.
Likewise, spreading the payment process over several individuals reduces embezzlement and improper payment risks. For example, a staff member familiar with legitimate association expenses approves invoices. A second individual in the AMC’s financial department pays the bill, while a third executive staff member then signs all checks.
Reliable Financial Information
The separation of duties principle applies to the handling and reconciliation of bank statements. Bank statements should be opened by someone other than the person responsible for reconciliation. This protects against the risk of statements being altered by the person tasked with balancing the statement. After the bank statement is reconciled with the financial software, and the internal reconciliation between the accounting department and member database staff is completed, reports are normally produced to reflect reconciliations and attached to monthly financial statements.
Monthly financial statements should be scrutinized by many individuals including association members, such as the board of directors and the finance committee, as well as the AMC’s president and chief financial officer or controller.
Meeting Government Regulations
Best left to professionals, this area includes obtaining and maintaining non-profit status, filing annual reports, and handling tax and audit issues. AMCs will likely have a highly-skilled staff trained in financial matters, such as annual report filing and fees, tax deadlines, and audit preparation.
AMC staff also can act as a liaison with a third party to conduct a yearly audit—a process that is vital to ensuring proper financial management and accountability. While the final accounting firm selection should rest with the association, the AMC will likely be well-versed in the preparation and submission of Requests for Proposals (RFPs) to various accounting firms. Audit preparation can be simplified with an AMC model, because all files and financial information are centralized in a headquarters setting.
AMC Internal Controls Count!
When considering an AMC for your association management needs, take a close look at its internal control processes and procedures. This system should always be a part of an AMC’s operating manual, and outline how tasks are delineated among staff members, as well as how specific tasks are handled. In this way, an association can have confidence knowing that their assets and financial management will be treated with competence, efficiency, legitimacy, and prudence.
