Internal control recommendations

Alberta Gaming, Liquor & Cannabis (AGLC) Compliance Audit has assembled a list of the most common issues found when charitable gaming audits are performed.

Effective internal financial controls ensure that gaming funds and other assets of the group are all documented and reported. This form provides information to stakeholders about avoiding mistakes and ensuring charities are well prepared before an audit occurs.

Cost Recovery – Records

Our group charges rent to use our facility and/or we collect fees to attend/participate in events/programs. What expenses can we pay using gaming funds?

When revenues are generated in the delivery of an approved program, the group must first use those revenues prior to using gaming funds to pay for program‐related expenses as per Section 4.4.12 of the Charitable Gaming Policies Handbook. Gaming funds are intended to support approved programs to the point of break‐even rather than toward the generation of profit. For a specific approved charitable program, once generated revenues are exhausted, gaming funds may be used provided the expenditures are eligible.

Possible risks: If gaming funds are used in instances where rent/fee revenue is being generated, the group may be subject to a repayment from non‐gaming funds. In some cases, the group may be required to undergo an eligibility review to assess whether they remain charitable or are operating a for‐profit entity.

Groups may find AGLC form 5626 (Event Worksheet) helpful.

Program/Event-Record Retention

We spent gaming funds on an event/program that is approved on our gaming licence. What paperwork do we need to keep and why?

The group needs to ensure it retains documentation regarding: event occurrence, individuals in attendance and supporting documents for the expenditures incurred with gaming funds so AGLC can determine compliance with AGLC policies. Per Section 4.1.7 of the Charitable Gaming Policies Handbook, documentation may include, but is not limited to: cheque images, invoices/receipts, records of fees charged to participants, profit/loss statements, attendee sign-in sheet, event program and advertisement. 

Possible risks: If AGLC cannot verify that the event was a) conducted and b) consistent with AGLC approval and policies in the Charitable Gaming Policies Handbook, the gaming funds expended could be subject to repayment to the gaming account from a non‐gaming source.
 

Designated Gaming Accounts

We make payments from any of our bank accounts, including the gaming account, that have funds. Is that allowed?

The gaming bank account should be used to pay for those expenditures that are an approved use of proceeds. If gaming funds are depleted and non-gaming funds are used, these expenditures are not an approved use of gaming funds. In other words, gaming funds cannot be used to repay a non-gaming account for expenditures incurred within the approved use of proceeds. In all cases, gaming funds are restricted to AGLC approved gaming program uses as per Section 4.4.4 of the Charitable Gaming Policies Handbook.

Possible risks: Gaming funds must remain in the designated gaming account and can only be spent on the group’s AGLC approved use of proceeds. Any gaming funds spent on unapproved uses must be repaid to the gaming bank account from non-gaming sources. It is recommended that all executives attend a GAIN session and be familiar with the use of proceeds to ensure that only approved expenses are paid from the gaming bank account.
 

Acceptable Payment Methods and Supporting Documents

Are cheques the only acceptable payment method?

As per section 4.4.7 of the Charitable Gaming Policies Handbook, acceptable options of payments have been expanded beyond the use of cheques to include: credit card, debit card, pre-authorized debit (PAD), electronic funds transfer (EFT) and bank draft. Approved payments must be made directly from the gaming account to the vendor or supplier by one of these acceptable payment options. The two-signature approval can be maintained, no matter which payment method is used, by having two executive members sign off on the invoice prior to payment being made. With the expansion of acceptable payment options however, it is important that the charitable organization ensures access to the gaming bank account is restricted to only certain approved individuals. 

We just approve payments when asked. Should we require more information?

Payments must be fully supported by receipts, invoices and/or other documents such as contracts, agreements, time sheets, etc. When approving payment made by cheque, the cheques must be signed by two authorized signing authorities of the group’s executive. When using alternative payment options, invoices or other supporting documents must be signed by two authorized signatory members of the group’s executive and should indicated which payment option is used. Prior to processing payments against credit cards, ensure that all receipts/invoices and the credit card statement are provided to the signatories. This practice serves as a record that supporting documents were provided and reviewed before the payment was approved.

Possible risks: If two signatories do not sign cheques, invoices or supporting documentation, the issued payment may be for an unapproved use, duplicated, or for an incorrect amount. A lack of oversight resulting in the misuse of gaming funds, fraud or error will require the affected charity to repay its gaming account from non-gaming sources.

Payee is a Signatory

Can those with signing authority approve their own expense/reimbursement claim?

For personal protection, a payee should never sign his/her own cheque, or be an authorizer on the payment when other payments are used. It is recommended that three or four of the elected executive members have signing authority on the gaming bank account so that the payee does not have to approve their own payment. This control is also beneficial if one signatory is unavailable. The intent of Section 4.4.7 of the Charitable Gaming Policies Handbook is to have two independent reviewers scrutinize support documents prior to payment approval to mitigate any conflict of interest perceived or otherwise.

Possible risks: An individual who approves their own payment represents a conflict of interest as there is a reduced level of objectivity in payment scrutiny. Additionally fraud opportunities are increased if an individual can approve payments to themselves.

Pre-Signed Cheques

What is wrong with pre-signing a supply of cheques because it is convenient and our executive(s) are not always available?

Pre-signing of cheques is not an allowable practice and all supporting documents should be reviewed before a cheque is signed. It is recommended to have a minimum of three authorized signatories on the gaming account(s) at all times.

Possible risks: Pre‐signing cheques puts funds in jeopardy if a pre‐signed cheque were to be lost or stolen or misused. If an invoice for an individual’s personal expenses was paid with the cheque or money was stolen, by pre‐signing the cheque the perception is that the signatory approved the payment, whether or not the documentation was reviewed.

Cheques to Individuals

Can an individual pay the expenses out of pocket and then be reimbursed from the gaming account?

While some expenses will require reimbursement to individuals, every effort should be made to pay the vendor directly from a gaming account to minimize the risk of unauthorized payments. As per Charitable Gaming Policies Handbook Section 4.4.7, payments should be made directly to vendors who have provided the group with goods and services. 

Regardless of which payment method is used, all expenditures made using gaming funds must be supported by original vendor invoices and/or supporting documentation.

If an expense reimbursement is required, an internal charity expense form should be completed and signed by the individual submitting the expense claim, with the original invoice(s) or supporting documentation attached, and sufficient details noting the reason for purchase. To ensure only approved uses are paid, the expense claim with all invoices or supporting documents should be reviewed and signed by two of the group’s executives with cheque signing authority prior to the payment being made.

Possible risks: By not paying the vendor directly, there is an increased risk of paying expenses using gaming funds that are not an approved use of proceeds, are not authorized in some cases, payments may be made for the for the same expense twice - one payment made to the vendor and one to the individual.  Having two executives review the reimbursement will ensure awareness of the types of expenses being paid and decreases the chance an unapproved expense being paid in error. In addition, this will reduce the perception that an individual is receiving a personal benefit. 

Reimbursement with Future Gaming Funds

If we run out of gaming money, can we use our general bank account and then pay it back when we get more gaming money?

In no situations can a charity pay for expenses previously incurred and paid from non-gaming funds, per Charitable Gaming Policies Handbook Section 4.4.10. Once all the gaming funds have been exhausted, other sources of revenue need to be used for the group’s program costs. Borrowing against future gaming proceeds is not permitted except in circumstances as described in Charitable Gaming Policy Handbook 5.15 - Facility as specifically approved by AGLC. Financial oversight such as budgeting and cash forecasting should be discussed regularly by the group’s volunteer executive to ensure that all programs are fully funded, paid in full and on time, from the appropriate bank account.

Possible risks: If gaming funds are used for retroactive expenses or to backdate the payments for expenses, the group will need to repay the gaming account from non-gaming sources. Gaming funds, earned from gaming activities are meant to assist in financing charitable programs that are approved on the group's gaming licence. Groups are expected to generate other income to pay for expenses when gaming funds are not available.

Post Approval of Expenses

Why don’t we just get AGLC approval for our event/travel after-the-fact? Asking forgiveness after-the-fact is easier than asking for permission in the beginning.  What does it matter?

Not obtaining prior approval when requesting a change to the existing use of proceeds is a contravention of Charitable Gaming Policies Handbook Section 4.4.6 and subject to administrative sanctions. Also note that as per the Charitable Gaming Policies Handbook Section 5.24.2, pre‐approval from AGLC is required for travel outside of Alberta and for certain events in Alberta, so the group must ensure the request is submitted far in advance of the event/trip. If the group is unsure if pre‐approval is required for the event, refer to the Charitable Gaming Policies Handbook or contact AGLC Use of Proceeds.

Possible risks: By asking for approval after the event/travel, the group runs the risk of the event/travel not being approved, which may result in a repayment being required to the gaming account using non-gaming funds.

Related Individuals

Members of our executive are related because it is difficult to find volunteers, or they do the best job. Why is that an issue?

Related individuals are not permitted to hold positions on the volunteer elected executive as defined in the Charitable Gaming Policies Handbook under "Related Party" Section 1.1.1 cc. Related executives or signatories (non‐arm’s length relationship), represents a conflict of interest (perceived or otherwise).

Possible risks: Having related members on the executive creates a conflict of interest, perceived or otherwise and may result in an audit/eligibility review. If both related individuals are signatories, this allows two related parties to approve payments without any review by other executive members which can increases the risk to a group for unapproved expenses, collusion, or theft. Charitable organizations are not eligible for gaming licences if they are a self‐interest group. Having related parties on the executive increases their influence over voting matters and the focus of the group. Perception of others may be that the related individuals control the group for personal benefit.
 

Questions?

Please contact: ComplianceAudit@aglc.ca.