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Sharing of Audit Experience (July 2008) Sharing of Audit Experience Basic Principles of Good Financial Controls Common Audit Findings Audited Annual Accounts (Note: related to aided non-IMC schools) 1. Basic Principles of Good Financial Controls Basic Principles of Good Financial Controls
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Sharing of Audit Experience • Basic Principles of Good Financial Controls • Common Audit Findings • Audited Annual Accounts (Note: related to aided non-IMC schools)
Basic Principles of Good Financial Controls Good Controls = • Proper keeping of books of account and supporting records. • Proper documentation and reporting including minutes of SMC meeting, Fixed Assets Register, etc. • Sound budgetary control. • Adequate supervision.
Basic Principles of Good Financial Controls (cont’d) Good Controls = • Proper authorization and approval of collection and payment procedures. • Payments properly supported. • Sound asset control. • Proper procurement procedures. • Clear segregation of duties.
Basic Principles of Good Financial Controls (cont’d) Underlying Principles = • Prudent in use of financial resources. • Set up and adhere to good internal control procedures. • Record important matters in the minutes ofSMC meeting, e.g. appointment,resignation, etc.of staff and acceptance of donation.
Basic Principles of Good Financial Controls (cont’d) Underlying Principles = • Comply with the requirements of Codes of Aid, School Administration Guide (SAG) and relevant EDB circulars/guidelines.
Basic Principles of Good Financial Controls (cont’d) Examples of Supervisors’ roles: • Keep proper books of accounts. • Operate bank accounts in the name of the school (include cheque signing). • Submit the audited annual accounts of school to EDB. (Code of Aid)
Basic Principles of Good Financial Controls (cont’d) Examples of Principals’ roles: • Keep unused cheque books under lock. • Review monthly bank reconciliation statements. Should initial and date the bank reconciliation statements after checking. • Approve write-off of assets and other valuables. Inform SMC of the write-off cases. (SAG)
Common Audit Findings • Procurement • Collections • Payments • Operation of Bank Accounts • Safe keeping of Assets • Trading Operations
A. Procurement • To meet the basic principles of “Fairness”, “Openness” and “Value for Money”. • To conduct quotation/tender exercises for procurements of stores/equipment and services.
A. Procurement (cont’d) Requirements in EDBC No. 15/2007 – • Declaration of conflict of interest • Sign an undertaking for declaration of interest. • Requirement should be brought annually to notice of staff. • Security of Information • Sign an undertaking for not making unauthorized disclosure of quotation or tender information. • Requirement should be brought annually to notice of staff. • Properly prepare quotation/tender records • Group store/services of same category in the same purchase before inviting quotation/tender.
A. Procurement (cont’d) Requirements in EDBC No. 15/2007 (cont’d) – • Do not split order to evade financial limits. • Provide identical quotation/tender specifications. • Tender Opening & Vetting Committee (TOVC) and TAC made up of different staff members. • Provide justifications for not accepting the lowest tender/quotation. • Check procurement records randomly (by senior staff).
A. Procurement (cont’d) Points to note: • Schools should conduct tender/quotation exercises, for example - • 24-month broadband internet service; • 36-month service in renting photocopying machines; • 12-month security guard service. (Remark: Financial limits based on total contract value instead of monthly payments.)
A. Procurement (cont’d) Points to note (cont’d): • Schools should conduct quotation/tender exercises for new and renewal of contracts. • Quotation/tender documents should be kept properly and intact.
B. Collections • Daily Collection Summary (DCS) is used to record school incomes daily. (Sample at Appendix 6 of Chapter 6 of the SAG) • DCS should include: • Date of receipt • Serial number of official receipts • Nature & amount of income collected • Bank-in date • Initial of staff responsible for amount collected (SAG 6.5.3)
B. Collections (cont’d) • Check DCS to ensure completeness & accuracy of collections. • Avoid keeping large sums of cash. • Avoid pre-signing of receipts. • All school incomes shall be paid into the appropriate bank accounts maintained in the name of the school. (SAG 6.5.3)
B. Collections (cont’d) • Any hire charges of accommodation should be collected in advance. 40% of net balance after deduction from relevant expenses should be credited to School and Class Grant. (EDBC No. 9/2005)
B. Collections (cont’d) • Schools should: • obtain SMC’s prior approval for accepting donations. • register details of all donations received by schools. • not allow the choice of trading operators/ suppliers to be in any way influenced by a donation or any other form of advantages. (EDBC Nos. 13 & 14/2003)
C. Payments • Support all payments by original invoices. • Stamp “Paid” on vouchers and invoices to avoid duplicate payments. • Attach original invoices with full details of goods/services provided to payment vouchers. (SAG 6.5.4)
C. Payments (cont’d) • Maintain accurate leave records for staff so as to avoid incorrect salary payment. • If the income from school activities is credited to school’s own funds, then the relevant expenses should not be charged to Government funds.
C. Payments (cont’d) • Follow ambits of grants laid down by EDB e.g. OEBG under EDBCM No. 102/2007
C. Payments (cont’d) • Follow ambits of grants laid down by EDB e.g. OEBG under EDBCM No. 102/2007 (cont’d)
D. Operation of Bank Accounts • Supervisor and one registered manager to sign cheques so as to maintain good control. • Prepare & check bank reconciliation statements monthly. • Do not pre-sign cheques. • Place surplus funds not immediately required for use in savings account or time deposits with licensed banks in HK. (SAG 6.5.6 & 6.5.3)
E. Safe Keeping of Assets • Keep Fixed Asset Register properly and up-to-date. • Conduct physical checking of school assets at least once a year, investigate and report any discrepancies to SMC. • Any write-off should be done with the approval of the school head. • A report on the write-off should be passed to the SMC for information. • In case of loss of assets due to theft/ burglary, report the case to the Police immediately. (SAG 6.5.5)
F. Trading Operations • Obtain prior approval for trading operations from the REO. • Subsequent changes to the approved trading operations (e.g. change of trading operator/ supplier, changes to the terms of the agreement) also require prior approval. (EDBC No. 13/2003)
F. Trading Operations(cont’d) • The profit from sale of exercise books, school uniforms, stationery, equipment and other items (other than textbooks) should be limited to 15% of cost price. • Rates, government rent and other relevant expenses in respect of tuckshop area should be borne by tuckshop operator. (EDBC No. 13/2003)
F. Trading Operations (cont’d) • Schools should conduct quotation/ tender exercise at appropriate intervals at least once every three years or before renewal of a contract as appropriate. • Schools should inform all suppliers and contractors in writing that the offer of advantages to school staff in connection with their official duties is illegal. (EDBC Nos. 13/2003 & 15/2007)
Audited Annual Accounts (cont’d) Points to note: • Surplus balance of OEBG exceeding 12 months’ provision will be clawed back. • Salaries Grant Account is a deficiency grant account and should be zero balance as at 31 August each year. • The net surplus of government grants should be represented by cash/bank deposits or other current assets for gov’t funds. A fund reconciliation should be compiled.
Audited Annual Accounts (cont’d) Requirements in EDBC No. 27/2003: • Appointment of Auditors Conduct competitive selection process in accordance with EDBC No. 15/2007 periodically (preferably every three years). • Audit Engagement Letter Agree with auditors on the terms of audit engagement and record in audit engagement letters.
Thank You End