In a previous BDO article, Audit Partner Tim Southern described areas of fraud risk for non-profits, including credit card purchases, personal expenses, payroll processing, cheque signing and cheque security. Mitigating these fraud risks requires understanding three key concepts:
- Documentation: Ensure complete records are maintained for all transactions, including “backup” material such as vendor invoices and receipts and related emails.
- Oversight: It is highly recommended that all expenditures are reviewed and approved “one level up” in the organizational hierarchy—including transactions by executives, which should be approved either by another executive or the Board of Directors.
- Standards: Ensure that everyone in the organization knows and follows the same process by providing appropriate forms and templates and do not pay expenditures that do not follow the process.
BDO IT Solutions has implemented Microsoft Dynamics NAV/Dynamics 365 Finance and Operations, Business Edition financial management software at numerous non-profits and charities in large part because its functionality and processes address these three concepts.
It is important to use the documentation function for records in the system. Microsoft Dynamics NAV provides several functions for linking or storing electronic files with both master records, including vendors and transactional records, including purchase orders, purchase invoices and ledger entries.
- Record Links: Simply paste in a web or network URL to provide a link to an external webpage or document.
- Notes: Write extensive Notepad notes, which are stored in the database and linked to the appropriate record.
- Microsoft OneNote Integration: Integration with either a local or cloud instance of Microsoft OneNote can provide a free-form and multi-media documentation method, which links OneNote pages to specific records. It allows organizations to store user procedures on a process by process basis in Microsoft Dynamics NAV.
- ZetaDocs for NAV: This is an optional add-in, which provides “drag-and-drop” document storage against key master and transactional records. While the electronic files appear inside NAV, they are actually stored on a network folder, and the links function in a way that you don’t risk broken links during folder reorganization. You can even “drag-and-drop” an email, with attachments, directly from Outlook into Dynamics NAV.
Microsoft Dynamics NAV includes robust and flexible oversight solutions. Through the workflow approvals system purchase orders, purchase invoices, journals and other records and transactions can be moved through either a simple or multi-step hierarchical set of approvals.
- “One Level Up” Approval Hierarchy: Each NAV user is linked to another user as their approver with a dollar-value threshold. One or more users at the top of the hierarchy are flagged as “unlimited approvers.” When a transaction is submitted, the appropriate user, depending on the dollar value of the transaction, will be requested to login and approve the transaction before it can be further processed.
- Transactional Criteria Approvals: Approval hierarchies can also be triggered based on the specifics of the transaction. Transactions tagged for a particular department or program could require approval from specific managers regardless of who actually submits the transaction.
It is necessary to set standards in the system ahead of time. Dynamics NAV is extremely flexible when entering transactions, so enforcing standards requires some additional planning. There are several tools in Dynamics NAV for setting up defaults, required financial dimension codes and valid combinations of financial dimensions. Dimensions are codes assigned to financial transactions to provide detailed categorizations, analogous to account segments in other accounting systems.
GL Default Dimensions
Each GL account can be set to require certain financial dimension codes on any entry posted to it. These can be set three ways:
- Require any code from a certain dimension
- Require a specific code from a certain dimension
- Disallow certain dimensions or specific codes
These settings can be used to ensure that specific expense accounts will require a certain level of specificity in coding. These settings are checked when a user attempts to post a transaction.
Vendor Default Dimensions
Each vendor master record—such as those representing each employee submitting an expense—can be set with specific default dimension codes in a similar manner as GL accounts. These defaults will be set on any purchase order or invoice created for that vendor.
Vendor Standard Purchase Codes
This tool allows you to set up templates of one or more entries and add it to a purchase order or invoice. For regular vendors or employee vendors in which only certain expenses are generally recorded, these can be preset with all the GL and dimension coding so the user just has to update the specific dollar amount in each case. This not only makes data entry easier, it also standardizes and ensures accuracy.
Dimension Combinations Grid
As a final check, when posting a transaction, a grid of allowable combinations of various financial dimension codes can be configured so that unclear coding combinations do not get posted.
DimensionPath is a third-party add-in for Dynamics NAV and provides the ability to configure balance sheet fund accounting for non-profits, as well as the ability to configure hierarchical defaults between related financial dimension codes. This add-in also provides the ability to restrict dimension options per Dynamics NAV user so users do not accidentally select inappropriate financial dimension codes for their location or function in the organization.
It is important to have a clear picture of the rules, standards and coding results required before configuring them since all of the tools overlap to some extent.
Expense Management Add-ons
Finally, there are a number of expense management add-ons that integrate directly to Dynamics NAV and provide employees with a mobile app to capture expense receipts as they happen, add user-friendly expense type coding and send them for approval. These are particularly helpful if you have a large number of service employees generating expenses as a regular part of their work day, such as visiting health-care practitioners, traveling case workers and the like.
While the fraud and error risks are significant in many non-profits, Microsoft Dynamics NAV provides a range of tools and methods built into the financial management system, which provides a high level of auditable mitigations for these risks.