GUIDELINES FOR AUDITORS FOR TRADITIONAL AND ELECTRONIC BANKING

  1. These guidelines are being distributed to you as one of our valued auditors, in an effort to assist you when you are carrying out your important work. It must be mentioned at the outset that the Province is extremely grateful to you for the work you have agreed to carry out on behalf of your Lodge, and any useful comments you may have on this topic will be considered at the Provincial Office.
  1. It is understood that some of the brethren taking on the role of auditor may be qualified accountants and others may be experienced in financial work. If you are one such reader, please persevere with the recommendations familiar to you in this paper for the benefit of the not so skilled in these matters.
  1. It is a requirement in all organisations to have financial work audited and this applies to all Masonic Lodges and other Orders. The audit is sometimes erroneously thought by some to prevent or identify theft or fraud and also to ‘check up’ on Treasurers. Whilst this must naturally be a factor, it is not the overriding reason. This impression must be avoided. Audits are mainly designed to provide, at their conclusion, an assurance to the members that the finances of their organisation are accurate and that the financial position of the Lodge is as shown on the accounts presented by the Treasurer.
  1. Obviously your main role is to examine the work carried out during the year by your Treasurer, who will have handled many financial transactions on behalf of the Lodge during the financial year. It is recommended that you handle the audit in a helpful manner, working in harmony to ensure that both auditor(s) and Treasurer are confident that the audit demonstrates that the accounts are as accurate as shown. You should be confirming that what he has done is accurate and any mistakes should be discussed together.
  1. We are all human and errors will occur, consequently the Treasurer should welcome any observations that you may make, and he may feel more comfortable about presenting the accounts due to your confirmation of their credibility. However, you must bear in mind that if mistakes are discovered later you may join the Treasurer in sharing the consequences. It follows that shortcuts are not recommended. Also, if unexplained irregularities are identified you should consider discussing these with your Worshipful Master.
  1. As you no doubt know, book keeping in respect of Masonic Lodge funds and charity accounts is fairly straightforward. Nevertheless you will need to check the income, expenditure and general conclusions that the accounts are likely to portray to the members. This will apply to both the Lodge and charity funds.

INCOME

  1. You should discuss the following controls in order to help ensure a basic level of protection for incoming Lodge funds:
  • Are cheques and cash receipts promptly recorded in the accounting records?
  • Are cheques and cash banked regularly and as promptly as possible?
  • Are cheques and cash not banked on the day of receipt (or the day after in respect of charity and alms collections at evening meetings) placed in a safe location?
  • And are funds banked gross, without the deduction of expenses. Expenses should be submitted separately, after gross banking, enabling their nature to be documented in the accounts.
  1. Certain other basic controls should also be discussed and examined:
  • Records of cash and cheques received should agree with bank paying-in slips and counterfoils
  • Counterfoils or paying-in slips should agree with bank statements, both in terms of amount banked and date of credit
  • Transfers or other direct payments into the bank should be identified and verified against supporting paperwork
  • Grouped cash and cheques paid into the bank relating to more than one payment item should be itemised on the paying-in counterfoil
  • Discuss with the Treasurer members’ subscriptions. Have members all paid? Are there financial problems relating to certain members? Is action required regarding certain members in default? The Treasurer may welcome the opportunity of discussing these and other points.

EXPENDITURE

  1. Cheque book stubs should be examined for compatibility with the description shown in the expenditure column of the appropriate ledger. All of the cheques issued will, of course, have been signed by the Treasurer and it has been recommended to Treasurers that at least one other member, authorised by the Lodge, should also sign above a certain sum.
  1. Ideally there should be three or even four authorised second signatories, not only to provide him with a second signature on cheque(s), but also to provide the Lodge with a brother who is recognised by the bank if the Treasurer were to be incapacitated. He would therefore be available to deal with the financial matters of the Lodge and he would be able to take over temporarily in the rare death of a Treasurer in office. Whilst you cannot insist on a Lodge using the safety measure of a second signature without referring to the members, it is worth explaining the reason for its recommendation and reinforcing its value.
  1. Some brethren believe that additional signatories on cheques are required solely to prevent a Treasurer from stealing Lodge funds, but this is not the case. The additional signatories have the effect of preventing cheques being used by thieves or burglars because although they may be able to obtain the Treasurers’ signature, they will not know the second signature(s) required by the bank. Remind the Treasurer of this point.
  1. Examine cheque books to establish that none have been pre-signed by a second signatory. Cheques should not be pre-signed by a second signatory because if the cheque book is stolen, then the aforementioned protection is gone.
  1. There should be no cheques issued to unusual payees without approval by members following a Notice of Motion at a Lodge meeting and a subsequent favourable ballot, unless it is an emergency, or it is below the limit stated in the Lodge By-Laws. Most Lodges have a ceiling whereby payments below that figure may be paid without reference to all of the members thereby eliminating the need for a Motion Notice.
  1. All payments should have been promptly recorded in cash books and they should include details of cheque numbers, nature of payment and the payee. Also there should be relevant documentation to support the validity of the payment usually in the form of an invoice.
  1. Many of our Treasurers work from home and if your Lodge is using traditional methods of banking (as opposed to e-banking) the security of the Lodge documents and, more importantly, the cheque books must be a consideration. Therefore ensure that the Treasurer has chosen a safe location to keep these items and, in the case of cheque books, a very safe storage location is necessary in the absence of having an anchored safe on the premises. Also check that, when on holiday, the cheque books are extra safe or they are left with a second cheque signatory in case of burglary.

CHARITY ACCOUNTS

  1. It is worth discussing the charity account during the audit with the Treasurer as there are several separate points that should be considered as follows:
  • Payments from a charity account are more difficult to account for as there are no standard invoices. However, there will usually be a letter of thanks from the recipient which should be on file
  • Accurate records should be maintained regarding money collected from all fundraising areas and these should be categorised in the books showing separate amounts for alms, raffles, etc. They should also be categorised on paying-in counterfoils
  • Masonic and non-Masonic donations should be separated as reports are sometimes required by the appropriate Provincial Officers.
  • Items such as widows Christmas hampers or gifts, floral presentations, and the like should not be paid from the charity account
  • No charity donations (unless they are below the Lodge ceiling outlined in the bye-laws or an emergency) should be made without a Notice of Motion followed by a successful ballot conducted for the members.

ELECTRONIC BANKING

  1. This system of banking is increasing and it is actively being encouraged by the Government due to the impending demise of cheques. In an effort to eliminate cheque use, the banks have withdrawn cheque authorisation cards and therefore cheques are no longer guaranteed. This has led to many traders (including supermarkets and garages) to decline payments by cheque totally. At the time of writing the date for the total elimination of cheques is October 2018, but they will be declining constantly during those six years.
  1. Several of our Lodge Treasurers are now using e-banking and it is therefore necessary for auditors to understand some basic points. This form of banking will undoubtedly be introduced slowly into the financial arena. At this time not all transactions can be handled electronically, but the majority are carried out this way by those Lodges using the system. However, at this time almost all charitable transactions are dealt with using cheques, but it is being considered that when chequesare discontinued, a new form of paper voucher will be introduced for charitable transactions.
  1. The principles for auditing Lodge accounts that are using e-banking are more or less the same as auditing traditional banking as most salient documents are the same; it is simply that they will have been printed off the computer. However, the following needs to be considered:
  • after each electronic transaction, a print out should have been filed showing details of the transaction and stored as part of the accounting record;
  • print outs of statements should form part of the accounting records;
  • all PCs with access to on line banking facilities should be secure;
  • PCs should be up to date with anti-virus, spyware and firewall software;
  • all password(s) and PIN(s) must be kept secret;
  • passwords should be changed periodically.
  1. Many banks have introduced a multiple authorisation facility which can offer dual authority or triple authority. This option will allow Treasurers to forward the transaction electronically to an additional user who will authorise it from a ‘transactions pending’ box.
  1. For your information, the Provincial Office will be offering help in the future to Lodges which wish to make the changeover prior to the demise of cheques.

GENERAL POINTS TO CONSIDER

  • If large sums of money are being kept in a current account, discuss this with the Treasurer. Unused charity funds, with the exception of a small reserve, should be deposited in your Grand Charity Relief Chest and large sums of Lodge funds, which are earmarked for future spends, should be removed from current accounts and placed in safer deposit accounts so eliminating fraudulent removal using cheques or other fraudulent methods.
  • Lodge accounts must not be allowed to be used in any way by third parties in order to receive or transfer money.
  • Discuss with the Treasurer the picture that these final accounts show. For example, if there is a deficit is there a reason, or should an increase in subscriptions be considered?
  • Discuss whether the accounts appear healthy and that the Treasurer is confident that the forthcoming year’s financial commitment can be met.
  • Finally, if you are satisfied with your findings you are able to sign the accounts in readiness for their presentation to the brethren of the Lodge.

We hope that these guidelines will assist in your valuable work and, as mentioned earlier, please feel free to send your comments to the Provincial Office.

Issued by Provincial Grand Lodge of Gloucestershire – November 2012