The purpose of a club audit is to ensure that the club is in good financial health and has been compliant with Australian Accounting Standards. Similar to a typical account audit, a club audit examines the effectiveness of a club’s internal reporting procedure and identifies any instances of fraudulent reporting.
The information below outlines:
- Auditing Best Practices
Responsibility for the control of business of any organisation rests with the organisation’s board of directors. Directors are subject at law to two broad categories of duties:
1. The duty to act in good faith; and
2. The duty of care, diligence and skill.
As directors of clubs come from all walks of life and diverse backgrounds, it is recognised that club directors often need to rely on the skills of others in order to discharge their duties. Traditionally, this support has come from club management (and occasionally external accountants) who perform the day-to-day management and accounting functions of a club.
Auditors are primarily used by clubs to ensure that the financial statements of clubs are prepared in accordance with specified criteria, namely the Australian Accounting Standards, i.e. the audit of financial statements.
Audit standards developed by the Australian Accounting Bodies recommend that auditors, before establishing their audit program and the scope of their audit activities, closely review business operations, particularly the control of cash and stock.
They must also determine the effectiveness of any internal control procedures. While audited financial statements may be thorough, the scope and nature of these audits often indicate that not all areas of a club’s operations have been thoroughly examined.
The auditor should be able to identify any omissions or weaknesses in controls and be in a position to advise management of a club. Auditors should also be able to identify any statutory requirements that a club has not complied with.
Investigations of registered clubs by the Department of Gaming and Racing have shown that in many cases, if club auditors had been used to target and examine key areas of a club’s operations, some of the irregularities identified such as fraud, misappropriation of funds and other abuses, could have been avoided.
These irregularities have in the past resulted in disciplinary proceedings being initiated against a number of clubs in the Licensing Court resulting in:
- Directors and/or secretary managers being declared ineligible to hold office;
- The imposition of monetary penalties; and
- Conditions imposed on a club’s certificate of registration.
In some cases, these irregularities were perpetrated by club management and directors.
Directors should consider their auditor’s role to include additional measures such as:
- Internal controls
- Security measures
- Financial transactions and records
The use of an auditor in these areas can be instrumental in detecting instances of fraud, misappropriation or other abuses. If further checks or improvements to financial systems are required, directors can consider using an auditor to conduct either operational audits and/or compliance audits.
As a general principle, and recommended best practice, the tasks of completing the annual accounts and conducting the audit process should not be carried out by the same person.
It is suggested that directors meet with their auditor to discuss these matters and consider the best ways to implement the recommendations outlined.
Operational audits review specific parts of a club’s operating procedures and methods, such as a petty cash system, or cash and cheque control systems. At the end of this audit, it can be expected that recommendations will be made to the directors to improve specific operations.
Compliance audits are primarily designed to determine if a club is following specific procedures or best practices adopted by the board of directors or required by authorities such as the Department of Gaming and Racing, the Liquor Administration Board or relevant legislation.
These audits protect the security of a club’s assets, as well as providing greater protection to a club’s management in carrying out its functions.
These audits can also be used in mitigation against proceedings taken against a club in the Licensing Court by police or the Director of Liquor and Gaming to defend any allegations of irregularities in the club’s transactions, records or procedures. They can also assist in proving that a board of directors had taken reasonable steps to recognise and prevent such abuses from occurring.
While there may be additional costs associated with an auditor’s fee, this needs to be balanced with the benefits that flow from review procedures and internal controls being implemented.
Auditors must comply with a number of statutory requirements. However, they can also undertake a broader review of a club’s operations.
Auditors should be used to carry out checks in key areas to enhance the integrity and compliance of a club’s operations. The key areas should include the matters outlined in this Information Sheet.
This list should be used as broad guidance and recommended best practices to assist directors. At all times, directors should also be guided by the recommendations made by their auditor about the areas that need to be targeted, as well as the specific nature of these checks.
Small clubs can carry out these specialised audits on a yearly basis, while large clubs should undertake them on a six monthly basis.
The following recommendations should not be adopted by auditors as the sole audit requirement, but as part of, or complementary to, their normal audit procedure.
a. Detection of Theft
i. Checking of machines at least on a monthly basis, with jackpot payments shown in the payout book to the individual amount for that combination shown on the prize schedule of the machine. For example, record three aces as “3xA” rather than “AAA”, which can be altered in the shape of a fourth or fifth “A”.
ii. Check clearances from cash boxes with cash box meters on at least a monthly basis.
b. Reconcile the club’s financial records to the net income from poker machines on at least a monthly basis to ensure all poker machine revenue is accounted for in the club’s income records.
c. Check on at least a monthly basis, that cancel credit payments balance with the book payouts.
Records of payments should be appropriately maintained in either a pre-numbered book providing full details of transactions, i.e. Cheque number, date, payee and amount, or in a computerised or electronic cheque register.
- The pre-signing of cheques should be prohibited and all blank cheques kept in a secure place.
- All expenses payable by cheque should be detailed on a cheque requisition form, where appropriate, and supported by source documents signed by an authorised officer. Cheques should only be signed by approved signatories, who examine and initial any supporting documentation.
c. Petty Cash
i. Petty cash vouchers should have supporting documentation attached and be properly authorised.
ii. Petty cash accounts should be reconciled on at least a monthly basis.
i. Reconciliation of bank statements should be undertaken regularly – at least on a monthly basis.
ii. Records of receipts should be accountable and provide full details of the transactions including the area of operation (i.e. bar, poker machines, etc), the date of banking and the amount banked.
iii. Check for any delays in banking which can result in funds that are not banked promptly, being used improperly (the reason for any delay should be noted).
b. From Functions (including those held under section 23 of the Registered Clubs Act)
i. Proper records should be kept of each function. Statutory records must be kept for functions held for non members or minors under section 23 of the Registered Clubs Act. These records should include the date the function was approved by the club’s board, the date and nature of the function, the location and time of the function, and the name and address of the person/s booking the function.
ii. Each function should be costed and the net income or loss from each function should be traceable to the club’s financial records.
c. From Membership Subscriptions
An annual reconciliation of the number of members of the club, compared with the number of membership subscriptions received, should be undertaken.
a. Proper records of wages should be kept, including employment application forms authorised by the club. Staff time sheets should be maintained in ink, showing the hours worked and be signed by both the employee and the supervisor, or alternatively, ensure appropriate mechanical or electronic time records are maintained and authorised.
b. Written authorisation and signing of all wage advances should be undertaken (any wage advances should be in line with existing club policy).
a. Stock Control
i. Proper records should be maintained of stock movement within the club.
ii. If external stocktakers are used, their monthly reports should be reviewed by the auditor and reconciled with the bar trading accounts at least on an annual basis, and be properly categorised. The reports must, as a minimum, show any variation of actual turnover to expected turnover for each category and explanations for any excessive deficiencies.
b. Gross Profit Percentage
Ensure that profit on bar trading is operating at an acceptable level, which is normally at least 50%. If it is not, inquiries should be made to determine what factors are impacting on bar trading profit, and whether any remedial measures are necessary.
a. Over Charging
Ensure that prices charged to the club for the supply of goods and services are consistent with quotes obtained from other suppliers for the same goods and services.
b. Short Deliveries
Proper procedures should be in place to enable deliveries to be checked with invoices and delivery dockets, to ensure complete deliveries are received. This could include the person who receives the delivery, signing the invoice or delivery docket and noting any short or incorrect deliveries, or damaged stock.
c. Supply of Goods
Ensure that the goods delivered are the same type and quantity ordered by the club.
d. Tendering Procedures
Tenders should be sought for the supply of goods and services, with a minimum number of quotes obtained. Documents relating to tenders/quotes should be maintained for a reasonable period of time.
a. Records should be kept of all loans to the club, including the name of the creditor, the amount of the loan, the amounts repaid, the balance outstanding and the interest rate, if applicable. A review should be undertaken to ensure that repayments are made in accordance with the loan conditions (if applicable) and that the interest rates being charged are not greater than commercial rates. Recommendations should be made accordingly.
b. If cheques are allowed to be cashed, procedures should be implemented to ensure that they are banked immediately and not held for redemption. Cheques that are repeatedly dishonoured should be reviewed to ensure that the person’s cheques are no longer accepted.
c. Cash advances on credit card transactions through EFTPOS / ATM terminals within the club should not be available.
a. Comprehensive and accurate records of cash floats should be maintained. Where the float does not balance, any “unders and overs” should be investigated.
Cash floats should be balanced regularly (preferably daily) and the balancing documents retained as an accounting record.
b. Random cash and float checks should be undertaken at least three times a year.
All cash generating areas of the club, particularly gaming areas, should be reviewed so that duties are divided amongst staff and, if appropriate, directors to provide adequate internal controls. Staff and directors, should be rotated in their duties so that the same staff and directors are not continuously working together, particularly on cash clearances of gaming machines.
Ensure any cash shortfalls are reported to the club’s management and, where appropriate, to the relevant authorities.
Check to ensure that the appropriate registers are in place for assets, secretary and directors.
Our dedicated team can assist you with all your auditing needs. Complete and submit the Express Enquiry form on the top right hand side of this page and we will contact you to discuss your enquiry or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.