AboutDon Sadler Expertise I can answer regarding Internal Auditing - especially operational audits, audit management, and how to revitalize a dysfunctional audit department. Also give advice to "auditees" on how to deal with auditors.
I DO NOT ANSWER HOMEWORK OR CLASS PROJECT QUESTIONS. For those answers, I suggest you scan previously asked questions and search on your favorite search engine.
I ALSO DO NOT ANSWER TAX QUESTIONS AS THIS IS NOT WITHIN MY EXPERTISE.
NOTE: I am not an accounting expert although i will try to help if I can... ask at your own risk.
Experience I have worked in the public and private business management arena with experience in OMB, Resource Management, Internal Auditing and consulting. I am a former President of the Inland Empire Chapter Institute of Internal Auditors, previously held Director positions in the Orange County Information Systems Audit and Control Association and the Northern Telecom International User's Association. I am a Certified Fraud Examiner and a Certified Information Systems Auditor.
Organizations Institute of Internal Auditors, Association of Certified Fraud Examiners, and Information Systems Audit and Control Association (ISACA)
Question Hi Don, I am a member of a volunteer fire company (INC.). I was hired by the company to take care of the landscaping. (I have my own business(DBA)and the members of the company approve the bid I submit for the work. The question I have is I am running for election as treasurer next year and some questions have been raised that it would be a conflict of interest if my company is hired to do the landscaping work because they are saying "I would be paying myself". I personally disagree; 1)as the company membership approves the "purchase" of the services 2)all checks must also be signed by the President and 3) I send an invoice to the company for the services. (Also the checks are made out to my landscape company not me individually) I just need clarification if this would be a conflict, or a red flag to an auditor, as I see it there are strict checks and balances in place and I am not "paying myself" the fire company elects to pay my Landscape company to do the work. Thanks !
Answer This is more an issue of a “perceived” conflict of interest than an “actual” conflict of interest. Most companies (certainly the public held companies) go great lengths to avoid even the perception of a conflict of interest. Smaller businesses often do not have the luxury of near unlimited resources to do this.
In your case, if I understand it correctly, there are sufficient safeguards in place to protect the company. The rule of thumb in any conflict of interest or separation of duties issue is that there is no process (chain of events) under the control of one person. I will outline the process you have (as I understand it) and comment on areas of concern (potential weaknesses) if I were hired to audit the process.
1. Your landscaping company submits proposal/bid to the company.
2. The company reviews your proposal/bid along with others received.
3. The company awards the landscaping contract to the best proposal/bid (You, in this instance).
4. Your landscaping company performs the contracted services.
5. Your landscaping company submits an invoice to the company.
6. Someone in the company reviews and approves the invoice for payment.
7. Someone in the company (accounts payable?) writes a check to your landscaping company.
8. The check is signed by the Treasurer and the President.
My concerns would be:
In steps 1 & 2 above, does the company/board solicit bids from anyone else? In other words, is it a competitive process? If not, it would bother me if I were a stakeholder in the company as it has the appearance of being rigged.
In steps 5 & 6 above, who reviews the invoice and approves it? If it is the treasurer then that is certainly problematic. If the invoice is submitted to the head of the facility department (or committee, or whatever, outside of the finance group); then that would be acceptable.
In general, it is best to avoid the perception of a conflict? Otherwise, there should be full disclosure. My recommendation is that the board should discuss it along with the current internal controls (safeguards) and potential weaknesses (as I identified). With small, especially with non profits, and even more especially with volunteer organizations, the structure is informal, at best. So long as there is full disclosure and appropriate internal controls, the company should feel comfortable continuing the business relationship with you and you should be able to run for treasurer. Indeed, you could campaign on a platform of “knowing the company from ground up!”
