Denominational Financial Policy Compliance and Internal Control Management Effective Practices among Adventist Schools in Thailand: Recommendations and Suggestions

38 complete discussion which may lead to new understandings and opening new ways of discussion (Denda, 2015). The investigation process for a research study also needs to follow a protocol to ensure the reliability of the study and findings (Yin, 2014). In addition, researcher bias may occur when the researcher conducts a study and already has in mind a preconceived outcome for the study (Fox et al., 2015; Terhanian et al., 2016). The researcher reduced the risk of researcher bias by letting other experienced people review the interview questions can be helpful, being intentionally aware of any preconceptions, and not allowing them to influence interpretations of the interviews conducted. Preconceptions may have a negative effect on the interview process by infusing bias, which may affect how researchers collect and interpret data (Hansen et al., 2014). The researcher interview protocol for the study includes open-ended interview questions. The interview questions asked of the four Adventist schools relate to policy compliance issues and the internal control procedures implemented and how is the use of policy compliance and internal control. Open ended interview questions allow the participants' answers to guide further discussions during the interview process (McIntosh & Morse, 2015). When a researcher conducts an interview, recording the interview session is beneficial (Fog-Petersen, May, & Arnfred, 2016). My intention is to audio record each interview session to ensure that there is an accurate record of what was said during the interview. If a participant agrees to be interviewed, but does not provide consent for it to be recorded, I will take handwritten notes during the interview. I worked with the participants for an interview schedule, and reschedule if needed, the interviews time which fit the participant’s schedules.

39 The interview participants were chosen for this study because their experiences, attitudes, and opinions reflect the issues researched. By selecting principal decision makers within Adventist schools, the research focus is directed straight to the source of first-hand, direct knowledge of institutional operations, and the functioning internal control procedures, particularly in the finance department. e. Research instrument or measures, including validity and reliability This study involved in-depth interviews as the method for gathering the data. This qualitative approach focuses on collecting necessary information, recommendations, and suggestions from stakeholders about how these ongoing concerns and problems identified in Adventist schools in Thailand might be resolved. The objective of the research is to find practical solutions for the ongoing concerns identified in Adventist schools. Validity means that the research instrument actually measures the topic that is being studied. The validity of this study was safeguarded by asking three experienced school administrators/researchers who are knowledgeable and experienced in finance and management to check and evaluate the interview questions to make sure the questions are on study’s objectives, the research questions, the interview questions, and for any addition. The interview questions include the list of specific policy compliance and internal control problems. The interview questions begin with generic and then going into the specific issues one by one with details to the person in charge. Research reliability refers to the ability of a different researcher to study the same topic and obtain similar results (Maxfield & Babbie, 2015; Noble & Smith, 2015). The reliability of this study is the repetitive data from the participants’ redundant or the consistency in the

40 answers. Other researchers may use this study’s procedures to conduct similar studies in their areas, or may replicate the study for confirmability. The researcher compared the internal control issues to the COSO internal control framework with five integrated components and 17 internal control principles (Appendix 2). In addition, researcher ensured that the data was locked or password protected in a safe storage location. f. Data analysis techniques The responses provided by the participants offers important insights about their personal knowledge and experiences with the implementation and problems of the financial policy compliance and internal control management. The analysis and evaluation was interpreted from the different groups of data collected and recorded. The researcher looks for patterns and themes in interviewee responses for the study. Such as, what approaches could TAM use to solve the main policy compliance issues? This technique of analyzing interview responses is called “content analysis.” Since these problems are governance issues, external stakeholders (TAM and school boards) need to take the lead in the process in resolving these problems. The researcher’s approach to internal control problems is similar; what “best practices” used by some schools might prevent internal control deficiencies, and could be adopted by the others? What specific remedial actions are suggested by administrators’/finance office personnel to deal with internal control weaknesses in their schools? Since these problems are management issues, internal stakeholders (school administrators and finance office staff) need to take the lead in the process in resolving them.

41 g. Ethical considerations The researcher assure compliance with the study’s ethical dimensions of the Asia-Pacific International University Institutional Review Board (IRB) throughout the study and approved by the MBA Program Committee. The researcher treats the participants in an ethical manner and that confidential information is not disclosed in an inappropriate way. The researcher sent an email informing the participants of the purpose of the study, the researcher’s contact information, and the university’s contact information. The researcher included a consent form and asked participants to reply by return email stating that ‘I Consent’ to be interviewed about this topic, verifying that participation in the study was voluntary. A participant could change his or her mind during or after the study by notifying the researcher in person, by phone, or by email. The researcher followed the university’s IRB policies in conducting the research. The researcher did not identify the names of participants or schools by creating code names rather than using actual school names. The researcher secured all notes, files, and personal information related to the study in a safe place. The research was processed in an ethical and private manner according to university guidelines. There were no conflicts of interest between the researcher and participants. Each participant may receive a copy of the study’s published results if requested. h. Conclusion In conclusion, a qualitative research study is one of the best ways to identify the main activities and patterns in a common setting (Bhatia, 2018). Furthermore, a qualitative approach provides the reasons behind situations that are not explored in a quantitative study (Bhatia, 2018).

42 Chapter 4 Results of Study a. Description of sampled groups or situations This study gathered information from interviews with two groups of participants: 1. External stakeholders, which included the Thailand Adventist Mission officers, school board members, and GCAS auditors. There were 11 external stakeholder interviews conducted as part of this study. The participant interviews focused on the core denominational financial policy compliance deficiencies related to governance and management issues, and employee wages and benefits issues. 2. Internal stakeholders, which included Adventist school administration officers and finance office staff. There were 21 internal stakeholder interviews conducted as part of this study. The participant interviews focused on internal control weaknesses of the accounting and administrative functions. Table 5 below shows the number of years of service of the participants in the external stakeholder position/role in the Adventist schools. Out of 11 interview participants, three participants had less than 5 years of service in their roles, seven participants had 5 to 10 years, and only one participant had more than 10 years. This shows that 73% (8/11) participants had more than five years of service in the roles as external stakeholders in Adventist schools. Table 5. External Stakeholder Participants Years of Service Participants Years of Service Total Less than 5 5 to 10 More than 10 External Stakeholders 3 7 1 11 Table 6 below shows the external stakeholders’ awareness levels of the recurring denominational policy violations, and whether or not they had read through the annual GCAS

43 reports. The Table shows that all 11 participants - four TAM officers, four school board members, and two GCAS auditors - responded positively acknowledging that they had read through the recurring issues and deficiencies of the four Adventist schools in Thailand. Table 6. External Stakeholder Participant Awareness and Read through GCAS Reports Responded and Acknowledged External Stakeholders Awareness 11 out of 11 Read Through 11 out of 11 Table 7 below shows the number of years of service of the participants in the internal stakeholder position/role in the Adventist schools in Thailand. Out of 21 interview participants, two participants had less than 5 years of service, 11 participants with 5 to 10 years, and eight participants with more than 10 years in their positions/roles. This shows that most of the interview participants have been in their positions and have many years of work experience in the Adventist school system. This shows that 90% (19/21) of the participants have more than 5 years of work experience in the Adventist schools. Table 7. Internal Stakeholder Participants Years of Service Participants Years of Service Total Less than 5 5 to 10 More than 10 Internal Stakeholders 2 11 8 21 Table 8 below shows the internal stakeholders’ awareness of weak internal controls and school administrative committee actions related to the financial issues. The table shows that all 21 participants, eight Adventist school administrative officers and 13 finance office staff, responded positively acknowledging their awareness of these issues. The administrators also know about some actions that have been taken on the issues mentioned in the GCAS reports.

44 Table 8. Internal Stakeholder Participants Awareness and Action (8 school administrators) Responded and Acknowledged Internal Stakeholders Awareness 21 out of 21 Admin Actions 8 out of 21 b. Order of presentation in line with research objectives and data analysis The objectives of this research study were to explore practical solutions for the policy compliance problems and internal control management concerns identified in Adventist schools in Thailand as follows: 1. To search for practical solutions that will improve the level of consistent compliance with core denominational financial policies in Adventist schools in Thailand. 2. To explore practical ways to create a more effective internal control environment in these schools and strengthen its implementation. Policy Compliance Issues Based from the information in Table 9 from the study of Hamra and Namkote (2020), nine core denominational financial policy compliance deficiencies were found as follows: Table 9 Policy Compliance Issues Governance Issues 2016 2017 2018 No. of Schools 1. Audit Committee Appointments * 3 2. Compensation Review Com Appoint + * 2 3. Financial Statements Regular Review * * * 4 4. Unsigned Conflicts of Interest * 3 Management Issues 5. Inadequate Building/Equip Insurance 5 of 17 5 of 17 Equip 3 + Employee Wages & Benefits 6. Employees Paid Too Much/Too Little 1 7 6 2 7. Excessive Tuition Assistance +15% +15% +15% 3 8. Excessive Medical Assistance o o 2 9. Unorthodox Vacation Policy 2 Total No of Issues 11 6 8 ● Major Issue ○ Minor Issue Source: Hamra and Namkote (2020) 5

45 From this study, Table 10 shows that external stakeholders discussed the seven most common governance and management deficiencies, along with reported challenges and suggested solutions for the policy compliance problems identified in Adventist schools in Thailand as follows: 1. Financial Statement Regular Review 2. Unsigned Conflicts of Interest 3. Inadequate Building/Equip Insurance 4. Employees Paid Too Much/Too Little 5. Excessive Tuition Assistance 6. Excessive Medical Assistance 7. Unorthodox Vacation Policy Table 10 Denominational Policy Noncompliance Common Issues Interviewed Common Recurring Issues 1 Financial Statement Report 7 of 11 interviews 2 Conflict of Interest 6 of 11 interviews 3 Building Insurance 5 of 11 interviews 4 Employee Benefit 6 of 11 interviews 5 Education Subsidy 4 of 11 interviews 6 Medical Subsidy 4 of 11 interviews 7 Vacation Policy 3 of 11 interviews 1. Financial Statement Regularly Reviewed Church policy requires that financial statements are regularly reviewed a minimum of nine times a year by school administrators and quarterly (four times a year) by school boards. All four Adventist positive acknowledged not fulfilling this requirement. However, based on the 2021 GCAS audit 2021, while the policy compliance letters issued to Schools B and D for 2019- 2020 still mentioned this matter, but there was significant improvement. Reported challenges:

46 Internal stakeholders reported several barriers to compliance with this requirement, including waiting for educational funds from the Thai government, not having enough time/staff to prepare the previous month’s statement before board meetings, and giving government reports a higher priority than denominational obligations. And for the past two years, during the COVID pandemic, online technology can be a very challenging adjustment to small schools. Suggested solutions: The board meeting schedule is recommended for the school to have at least two weeks to prepare details for financial statement presentation which is about after the 15th day of the month ending. The school treasurer should remind the administration secretary to put the monthly financial statement as the first agenda item for the monthly Administrative Committee meeting. If board meetings can be scheduled during the latter half of the month, this would make it easier for current financial statements to help with management decisions. And lastly, having the right individuals who can meet the school standards and requirements in a timely fashion is also essential. 2. Unsigned Conflicts of Interest According to church policy, conflict of interest statements must be signed annually at the beginning of the school year. All four Adventist positively acknowledged violating this audit requirement. According to the 2021 GCAS audit, School B and D audited for years 2019-2020 have complied with this requirement. Reported Challenges:

47 In Thailand, Adventist school officers and accounting staff are Thai people, and understanding the meaning of technical English terms and their importance is sometimes a challenge. A translation has been made, but its significance may not be clear to Thai people, sometimes employees feel threatened when being told that they must sign this document. School board members serve voluntarily with no compensation, and so may also not understand the need to sign this document. Suggested solutions: At the beginning of each school year, a simple and clear explanation of the reason for this requirement should be made to all school officers, staff, and board members who are affected by it. It is important that they understand the benefits of complying with policy requirements, which can help them see their purpose, meaning, and importance. Another suggestion is for TAM to prepare a good quality written Thai translation of the conflict of interest document for all the schools that is clear and easy to understand. It is recommended that signing this document should automatically be done at the beginning of the school year. The school officers should prepare all documents for signing at the first meeting, when everyone needs to sign them. If a board member is not comfortable signing by the second year, then replacing the member should be considered. The chairman of the school board can help to resolve this problem. 3. Inadequate Building/Equipment Insurance Reported challenges: According to the church policy for building and equipment insurance, the requirement is a yearly insurance policy that covers full replacement value. In Thailand, normally an old

48 building cannot be fully insured after its book value has depreciated. It is considered to have more risk even though it is still in use. The local insurance company will send an officer to evaluate the facility before determining the premium cost. The GCAS auditors recommend that Adventist schools purchase Adventist Risk Management (ARM) insurance under the General Conference instead of insurance from a local company that does not comply with denominational policy. Adventist Risk Management, Inc. is the official insurance risk management company for the Seventh-day Adventist Church and Adventist ministries around the world (Adventist Risk Management, Inc., n.d.) A challenge faced by small Adventist schools is the high cost for insurance compared to their revenue. The school needs to provide many documents and communicate online in English, since no one from ARM comes to the school to determine the cost of the premium. Given their limited personnel and the language barrier, this insurance recommendation is very challenging for them. This policy was established by administrators in Western countries which operate at a different economic level t than that in Southeast Asian countries. Another issue is that since the government does not require building insurance, Thai people generally do not see its importance. One school mentioned that future plans call for depreciated buildings to be demolished, but according to policy if the building is still in use, it needs to be insured in case of sudden collapse so that the liability could be covered. And lastly Thai Adventist schools shared that using ARM, which is a foreign organization, is complicated and not suitable for local SDA schools for communication in real situation. They prefer face-to-face dealings with a company that may be contacted easily and can take immediate action rather than online communication.

49 Suggested solutions: The higher organization overseeing the schools (TAM) should explain the importance of full insurance coverage and the need for policy compliance so that the understanding of this policy will be the same at all levels. Even old buildings need to be insured against risks, and it is cost effective in the long term. If an unfortunate incident were to happen, then how will the school deal with this problem, how will it replace a building? It is the duty of the officers to protect the school’s buildings and equipment. For example, when the school does a fire drill at school, many employees may feel funny or laugh of the drills practices. But this is something that must be done, and another requirement is to allocate funds for building and equipment insurance coverage. The financial limitations of Thai Adventist schools have been mentioned, and so compliance with this policy will not be easy for smaller schools. Since purchasing insurance from ARM is costly and communication is difficult, it is suggested that TAM explore the possibility of finding a reputable local insurer that could provide acceptable coverage. If all Adventist schools operated as a consortium, perhaps better rates could be secured than if each one looked for coverage on its own. This could help ensure better policy compliance and secure the safety of school buildings for the next generation/future. 4. Employees Paid Too Much/Too Little Reported challenges: According to church policy, the higher institutions’ yearly wage factor is approved and multiplied by the employee’s position percentage level (SSD Wage Scale). Employee

50 overpayment is generally due to management initiatives to hire and retain the best employees. From a business perspective, if your business can provide good benefits, why not do so in order to have best employees running your business? Employee underpayment is generally due to constraints on financial resources. Another challenge for underpayment is due to governmental regulations for employees compared to the church policy. In Thailand, the minimum wage for government schools starts at 15,000 Baht/month, which is lower than Adventist wage scale. A teacher’s starting wage scale is about 65% of the wage factor of 39,000 Baht for 2021, which amounts to about 25,000 Baht. Adventist international schools can afford to overpay their employees because they collect higher tuition and fees. So providing more benefits to retain teachers is important when compared to other international schools located in the same city. Another challenge is where an institution is located, because with a centralized general denominational policy, there is a tendency to set one standard for all locations. For example, an Adventist international school in Bangkok is expected to pay similar salaries as smaller schools in the country side where the cost of living is very low. The living allowance for teachers in the city may have not been adjusted for a long time. How is it that the cost of living is increasing, but the living allowance remains the same? The housing allowance is practical and beneficial to employees if the school provides housing facilities, but if the teacher and family will rent a house, the housing allowance is not realistic compared to urban rental prices. Suggested solution:

51 Only a few employees at two schools were overpaid or underpaid, and in some cases these problems resulted from cost of living differences in urban and rural settings. Since these appear to be local problems, TAM and school boards should look for ways to bring remuneration of these employees into compliance with denominational policies. 5. Excessive Tuition Assistance Reported challenges: Many schools have provided excessive tuition assistance benefits to their employees for a long time already. When the teachers feel happy, this creates more benefits than higher salaries, but the employees are not happy in their work. Humans have feelings, but policy is just a theory. According to church policy, the tuition allowance is 60%, and schools have been providing other fee discounts as well. An interviewee suggested to change the term from discount to scholarship. To make this change, the management needs to work with the school board and also obtain approval from higher organizations. It was also mentioned that Adventist schools are unique schools which also have unique benefits for SDA employees. Adventist school managers need to keep the best SDA employees, and offer competitive benefits compared to other schools. This leads to recurring noncompliance with policy. Therefore, to be competitive with other schools, they will be cited for noncompliance. If Adventist schools will remove this benefit to comply with church policy, its workers will not be happy because they cannot support their families. This would likely lead to massive turnover among Adventist employees. Suggested solutions: It is recommended that if the church policy does not seem applicable to the current situation facing Thai Adventist schools, why not make a change for a good reason? The school

52 has been providing benefits for a long time. The school board and the management must find ways to support institutional employees, practical ways to compensate and retain good quality Adventist employees. The children of Adventist employees should study in our schools, not in other government supported Thai schools which have very low cost, good quality education, and many other benefits for students and parents. Some Adventist employees choose to send their children to schools where they can afford the costs. If a school can cover the fixed cost for the classroom with the total number of students, giving support or even free education to employees’ children will not adversely affect the school’s financial situation. The management believes that this will boost the dedication and loyalty of employees to stay and do good work at the school because the school takes good care of their families. Not only that, this benefit helps to compensate for the lower salaries in Adventist international schools. This is also mentioned because there are other private prestigious international schools who provide free education for the children of their employees. Another interviewee suggested that if free education for employees’ children is too expensive, then the first child could receive free tuition and second child 60% tuition assistance. One interviewee also mentioned that schools should just forget about their noncompliance, and continue doing this for the good of the school. If the school loses the competent teachers, then it will close. What is the use of compliance with the policy? From a practical point of view, the policy may not be in tune with the times nor designed for these specific entities. The church policy has been designed for the whole world, not for a specific location like Thailand. Some organizations may deviate from the policy because of existential reasons in order to survive.

53 Thus, another suggestion is that noncompliance to policy could be allowed to continue; the management should have the discretion to make such decisions for good reason. The management understands that it is difficult to obtain Division approval for a policy exception because once exemptions are granted, the door is opened and more requests may come in. So higher organizations need to balance whether to stick to the policy with no exceptions, which may freeze the growth of Adventists schools in Thailand, to permit noncompliance with policy, or approve policy exemptions for the reason that this will support growth of Adventist schools help them remain competent in the midst of non-Adventist educational standards in Thailand. 6. Excessive Medical Assistance Reported challenges: According to the church policy for medical assistance, medicines need a doctor’s prescription. In Thailand, a doctor’s prescription is not needed to buy general or common medicines. Schools give reimbursement for original receipts with medication details from a pharmacist. Pharmacists in Thailand can advise about medications for general and common symptoms, or else they will normally recommend to check with a doctor. This local practice does not fit with the church policy made in Western countries based on Western culture that does not seem applicable in Thailand. In Thailand, some over-the-counter drugs have general acceptance, but is may be hard to determine the name of the medication because of the language barrier (Thai alphabet). So no doctor’s prescription means noncompliance with policy. In Thailand, the practice is that going to the doctor will mean paying for the doctors’ fee (for example, 800 Baht) to prescribe a common medication. The employee may spend half or one day off work waiting in the doctor’s queue. By

54 using good judgement and knowing what the doctor normally prescribes, the same or sometimes better medicines may be bought at a lower cost than from the hospital, where medication prices are higher and used to subsidize the cost of medical services. In cases where Adventist schools cannot follow the medical assistance church policy because financial limitations. In Thailand, the Thai educational employees have social security medical subsidy from the government, and the balance that exceeds this coverage can be claimed from the school. Generally, everyone understands and applies this approach. Ellen G. White’s writings support natural medicines, but church policy supports conventional medicines, which may not be in line with these inspired messages. Church policy does not allow these approaches, so schools are expected to comply with the policy. The school management explains this situation each year to the auditors, but still is noncompliant according to the policy. Another example given was that employees may not be cured or even die by using only natural medications. Church policy sees a need for doctor prescriptions to save employees, rather than experimenting with natural means to heal disease; that is the justification. For example, COVID-19 vaccinations were given medical assistance by the schools based on management judgement that this is necessary in a pandemic. The church policy was not designed to include pandemics, but rather to cover regular medical needs. Suggested solutions: Therefore, respondents considered noncompliance with this policy to be reasonable for the sake of employees. The policy was made from a macro point of view for everyone and all institutions regardless of country. It may be really hard to make a customized or specific policy for one specific organization. If school management believes that not following the policy is

55 justifiable and practical, they have to face recurring noncompliance with church policy to do what is right for the employees. When working with people, sometimes the right thing to do may not be complying with the policy. There is always a right response for each time and place. If an organization approved noncompliance once for an employee with a valid reason, then every employee should have the same treatment. Once given for special circumstances, it may become common to all as long as the school can afford to provide the benefit. But again, management must balance what is good for employees. If the policy is not doing good for the organization, then it is better to face noncompliance rather than to apply a policy that the organization will regret later. Since this situation is a problem throughout Thailand, perhaps TAM could work with the schools on drafting a clear explanation of the reasons why compliance with this policy is problematic, and see if higher organizations would be willing to grant an exemption from this policy. 7. Unorthodox Vacation Policy (yearly) Reported challenges: Church policy for yearly vacation policy requirements is based on years of service: for example, 15 years of service has 20 vacation days per year. Based on the interviews, this vacation policy can apply for church pastors and office staff, who can request vacation days off work. But in the working environment for school teachers, they are not allowed to request vacation. Their work does not permit vacation to be taken whenever they want. The church vacation policy based on years of service is difficult to apply to teachers in Thailand. All teaching positions, regardless of whether a teacher has one year of service or 20 years of service, are given the same number of vacation days according the school year calendar.

56 For example, in Thai Adventist schools, teachers get a yearly one-month vacation during the two weeks of semester break and two weeks at the end of the school year. In Thai schools, one month of school break is given according the school year cycle; when there are no students, teachers can have a break. Since the work responsibility is different, the vacation policy also needs to be different. Suggested solutions: It is recommended that if the local Thailand legal requirement is different from the denominational policy for the educational vacations, the rule should be to follow the local law. If the local law says 10 days of vacation not according to years of service, and denominational policy says that vacation increases as years of service increase, then the denominational policy is more generous. In cases like this, it is better to adopt the more generous policy. If a school setting has different rules for teachers, the denominational policy will not be applicable because the local policy is more generous. The rule can be to adopt the most generous policy, denominational or local. The policy is not fixed; it should not be engraved in stone. Policies can be changed; the purpose or use of policy is for the organization’s and employee’s advantage, not for their disadvantage. And lastly, the Audit Committee is required by denominational policy to meet once a year after the GCAS audit report is given to the school, and the Compensation Review Committee must meet once a year before the school year begins. These two issues were not mentioned because at the present time, two out of four schools in the study have complied with these policies according to the interviews and based on the 2021 audit reports. In addition, an interviewee shared about the challenge of finding lay representative members with experience and expertise for these two important committees. One suggestion

57 was to request TAM to help find and assign qualified members for these committees and get approval for their volunteer service for the 11 Adventist schools in Thailand. These members may need to have some orientation activities so that they will understand their roles in supporting and benefitting the work of these institutions. The selected members may be given some travel allowance to assist the volunteer members. With the help of the TAM, this can provide important continuous support to Adventist schools in Thailand to comply with denominational policies. Internal Control Issues Based on the information in Table 11 from the study of Hamra and Namkote in 2020, 16 internal control deficiencies were mentioned as follows: Table 11 Internal Control Deficiencies Accounting Control Issues 2016 2017 2018 A/E No. of Schools 1. Bank Reconciliations Not Reviewed o o o 3 2. Departmental Income/Expense Over-reported o o 1 3 3. Erroneous Calculation of Cash Position * * * 19 3 4. Inadequate Allowance for Doubtful Accounts o o o 3 4 5. Journal Vouchers Not Reviewed o o 4 6. Reconciliation Reports Not Reviewed * o 4 7. Receivables and/or Payables Misstated o o o 2 4 8. Severance Allowance Lacking, Not Reviewed o o 3 3 Administrative Control Issues 9. Authorization Problems * (5) 3 10. Equipment General/Subsidiary Discrepancies o 1 4 11. Inadequate Internal Control of Cash * 3 12. Incompatible Duties/No Segregation of Duties * 3 13. More Frequent (Daily) Cash Deposits 3 14. Misc. Problems with Bank Accounts o 3 15. Physical/Recorded Inventory Values Differ * * * 1 4 16. Policies: Asset Purchase/Disposal, Capitalization 1 3 Total No. of Issues in Table 12 9 7 Total No. of Comments in GCAS Letters (22) (12) (9) No of Specific Adjusting Entries/Significant 11 11 9 31/8 *● Major Issue ○ Minor Issue A/E = No. of Adjust. Entries Hamra and Namkote (2020)

58 From this study, Table 12 shows that internal stakeholder interview participants identified the most common 8 out of 16 recurring problems of accounting and administrative internal control weaknesses. They also explained some challenges in resolving these problems, and recommended practical solutions to create more effective internal control environments and strengthen their implementation in Adventist schools in Thailand as follows: Accounting Control Issues: o Department income/expense over-reported (yearly) o Erroneous calculation of cash position (yearly) o Inadequate allowance for doubtful accounts (yearly) o Reconciliation reports not reviewed (monthly) o Receivable and/or payable misstated (monthly/yearly) o Severance allowance lacking, not reviewed (monthly/yearly) Administrative Control Issues: o Equipment general/subsidiary discrepancies (yearly) o Physical/recorded inventory values difference (yearly)

59 Table 12. Common Accounting and Administration Internal Control Weaknesses No Issues Interviews with 8 Admin Officers 1 Bank reconciliation not reviewed 2 of 8 interviews 2 Department income/expense over-reported 7 of 8 interviews 3 Erroneous calculation of cash position 4 of 8 interviews 4 Inadequate allowance for doubtful accounts 6 of 8 interviews 5 Journal vouchers not reviewed 3 of 8 interviews 6 Reconciliation reports not reviewed 4 of 8 interviews 7 Receivable and/or payable misstated 5 of 8 interviews 8 Severance allowance lacking, not reviewed 6 of 8 interviews 9 Authorization problems 1 of 8 interviews 10 Equipment general/subsidiary discrepancies 4 of 8 interviews 11 Inadequate internal control of cash 3 of 8 interviews 12 Incompatible duties/no segregation of duties 3 of 8 interviews 13 More frequent (daily) cash deposits 1 of 8 interviews 14 Miscellaneous problems with bank accounts 3 of 8 interviews 15 Physical/recorded inventory values difference 5 of 8 interviews 16 Policies: asset purchase/disposal, capitalization 2 of 8 interviews 1. Department Income/Expenses Over-reported In the interviews of Adventist school administrative officers, 7 out 8 mentioned that yearly departmental income/expense was over reported. This is a recurring accounting control minor issue in the four audited Adventist schools. It is relevant because according to accounting standards, income or revenue should come from a third party, outside services, of sales of products to another institution. So when there are transactions within the institution from one department to another department, this increases their income and expenses, making the income overstated. Since this is an unreasonable increase, it needs to be offset by deducting the cost and the income so that the remaining portion represents the true income earnings. Reported challenges: The interviewees mentioned that they did not follow what the auditor recommended because they were not sure, and did not clearly understand the English version of accounting

60 principles. This minor issue is still recurring for all four Adventist schools since the amount is not material for the financial statements. Different reasons were given why this is done in each organization. Some had a hard time to track and monitor these transactions due to time constraints, so management needs to weigh the costs and benefits. Is the benefit higher if you spend time on interdepartmental transactions? With some schools, it is possible for this to be done, but the amounts are not yet significant. Suggested solutions: This can be done with an eliminating entry in Sun Plus for inter-departmental transactions in a school. But since these are small schools and the amount is not yet significant to the overall financial statements, the auditors have not emphasized this matter. But it may become material later on, and so before it gets out of hand, it is recommended to start while it is small, and not wait for when it becomes bigger. For accurate presentation of the organization’s financial status, it is recommended to set up the controls and necessary procedures to address the intra-organizational transactions (transactions within the same organization). In schools where there is a problem, accountants could ask the auditors to teach them/show them how to prepare a proper adjusting entry to eliminate this problem. A monthly adjusting entry should be done when preparing the financial statements. How beneficial this is may depend on the management, but in the view of the auditor, such transactions need to be offset for the financial statements to be fairly presented. This may be like window dressing that makes the financial statements look better with higher income and expenses than what is really being achieved. Therefore, it is better to comply with policy for this issue.

61 2. Erroneous Calculation of Cash Position From interviews with the administrative officers, 4 out 8 interviewees mentioned the erroneous calculation of cash position, which is a recurring accounting control issue in some schools. Cash is the most susceptible asset to be stolen in an organization. The loss of even a little money is not a good indication. That means there is an internal control weakness, and how can we know that is this is the only amount which was lost. Reported challenges: The problem mentioned by the auditors was improper classification; entrance or damage deposits held until a student graduates should not be classified as “Cash”, considered a Current Asset, or used to calculate operating capital. They are a noncurrent asset. Only deposits from graduating students are current, since they will be returned in less than 12 months. This was not difficult to fix, and the school was already in compliance for the 2019-2020 school year audit. In cases where the monthly reconciliation process is delayed, the internal control weakness problem lies when errors are not quickly detected. The GCAS auditor comes a year later and finds errors that should have been corrected and adjusted before the year end closing. Suggested solutions: Money is easily stolen, so the strongest internal control measures should be implemented, which includes a responsible employee who is in charge. The employee in charge of the reconciliation process should be rotated yearly, and should not be done by one person for assets, cash and bank, and account receivables. This will reduce or limit work delays, errors, and increase the effectiveness of the reconciliation process. The yearly rotation in the reconciliation

62 review is so that the employee will not become too familiar with the functions and attempt to override them. If a school has only a few finance office employees, then it is better to rotate the functions. This process will help check for and correct errors promptly. The purpose of internal control is to detect, prevent, and correct the errors on a monthly basis. 3. Inadequate Allowance for Doubtful Accounts In interviews of administrative officers, 6 out 8 interviewees mentioned about inadequate allowance for doubtful accounts, a recurring accounting control minor issue in some schools. Reported challenges: Some managers said that all receivables are considered collectible, and so they decided not to allocate an allowance for doubtful accounts. If the uncollectible account is material, then the officers will be misled by the information thinking that they have a lot of cash that will be collected. But in the case of financial difficulties, it may turn out that only 50% of the account receivables are collectible. Suggested solutions: According to Generally Accepted Accounting Principles, a collectability analysis is a required technique used to estimate the uncollectible collects. For example, the financial statement may show that the amount of receivables is 100,000 Baht, but if only 50,000 Baht can be collected, then it is misleading. The amount can be based on the past year’s ending balances of overdue accounts receivable to make an estimation for the allowance for doubtful accounts. This is an important process because accounts receivable are connected to cash, so a high accounts receivable balance means that a large cash inflow is expected in the future. But if only

63 50% is received, what will happen to the school’s operations? Schools should comply with this requirement in order to control their cash flows and to match their income and expenses. This also will help the statements to fairly present the school’s financial performance, not just to look nice with lower expenses, which may become misleading tomorrow. Even when it is expected that all account receivables can be collected, it is still recommended to have an allowance for doubtful accounts to fairly present the schools’ financial situation. 4. Reconciliation Reports Not Reviewed In interviews, 4 out 8 school administrators mentioned that reconciliation reports were not reviewed, which is a minor recurring accounting control issue in some schools. Reported challenges: Adventist schools may have only a few transactions during the year with the other institutions, so the review may be forgotten or seem unimportant rather than being done monthly. Suggested solutions: If a school has many transactions with other institutions, it is recommended that this be done monthly, quarterly, or yearly per the judgement of the reviewer. A schedule check list for the reconciliations would be good. Even though this is a minor issue, but it still needs to be checked, reviewed, and signed by a separate person.

64 5. Receivables and/or payables misstated From interviews of the school administrative officers, 5 out 8 interviewees mentioned that yearly receivables and/or payables were misstated, which was a recurring minor accounting control issue in four schools. Reported challenges: Management may consider the issue minor and not feel the importance and urgency to comply with policy yet. For example, if the payment check is deposited in bank and the check clearing is done during the month then the monthly reconciliation has no outstanding but if not, it is an outstanding check at bank. This will cause the institution’s financial statements to be misleading even if the amount is not material. In case it is material, it becomes a weakness in the internal control management. Another internal control weakness is connected to the allowance for doubtful accounts. When the estimate is not accurate, then the accounts receivable balance will be overstated. In case payables are misstated, it may have something to do with recording, and the mistake is connected to the cash. A deliberate mistake in accounts receivable or accounts payable can also result in missing cash. Maybe because the reconciliation is not up to date or done monthly may cause the accounts payable balance to not be updated correctly. For example, when cash has been paid but not reported by the cashier, or a customer paid by check but the school did not cash the check yet, the reason why it is not recorded may not be evident because the reconciliation is not done. The check was deposited to the bank, and with no reconciliation statement, the fact that the receivable was already paid will not be known.

65 Suggested solutions: Reconciliation is important to reduce and identify mistakes in accounts receivable and accounts payable. When auditors confirm with a supplier and the supplier confirms the amount paid, what comes to mind? Why was payment not received? Why is the payable still there? A check list with reminders for monthly, quarterly, or yearly reconciliations may help. And this still needs to be checked, reviewed and signed by a separate person. Another recommendation is to use a software package with a special module to help track and list the payable payments. 6. Severance allowance lacking, not reviewed In interviews with the school administrative officers, 6 out 8 interviewees mentioned that the yearly severance allowance was insufficient or not reviewed; this is a recurring accounting control issue in some schools. For employees who work for many years in the Adventist system, the amounts are often quite large. This is an allowance; no cash outlay is required. An estimated amount of the severance allowance is sufficient. Reported challenges: One challenge may be that the school considers this a minor issue and that there are other more important issues to work on. However, this is not true if a school has many middle-aged or senior employees. The school may wonder what is the incentive for calculating the severance allowance? However, it doesn’t take much time, and must be done for the employees. Another challenge may be that the accountant is too busy or the allowance is adequate, so the review was not done, but it is better to review the account to see whether it is adequate or not for accuracy.

66 Sometimes businesses do not want to show all their liabilities; they want to report lower total liabilities. For example, an inadequate severance allowance in the financial statement causes expenses to be understated. In cases where the school has few employees, it is a small amount, but if the school has many employees (100 or so), then this can be very large. This accumulating liability amount is not disclosed; therefore, it is important for the school financial statements to fairly present its position. There may some English comprehension misunderstandings and changes in requirements, and the amount is not revised accordingly. Some schools may setup an annual adjustment to gradually reach the correct amount because of financial limitations. If this is a problem at a school, the finance office could ask the auditor for help in learning how to do this. If the school doesn’t do it, the auditor may recommend an adjusting entry anyway, so it ends up in the financial statements. Suggested solutions: It is recommended that the school treasurer should regularly calculate and review this allowance. It is possible that the amount will remain the same, decrease, or increase as some employees retire, are paid, or are discontinued. If the allowance is lower or higher by a small amount, this is a minor issue, but it is better for it to be accurate in the financial statements. It would be better if a system can be put in place to automatically calculate the correct severance balance, and an accountant can check to see whether rates have changed, and if new employees are included or old employees have been removed. In case a school may not be able to completely fund its severance allowance liability, changes based on Thai legal regulations should be noted. A list of employees who are 50 years

67 old or older should be updated, and if the school cannot completely fund this liability, it should try to reduce its operating expenses so that operating gains will gradually cover this deficit. 7. Equipment General/Subsidiary Ledger Discrepancies In interviews with school administrative officers, 4 out 8 interviewees mentioned about the yearly equipment general/subsidiary ledger discrepancies which is a recurring administrative control minor issue in all four schools. Reported challenges: The challenge is in reconciling the equipment general ledger with the subsidiary ledger tracking the depreciation because no reconciliation was conducted. This problem also arises when equipment items are purchased but not properly recorded in the accounting system. Another example is the case of donated equipment which is received from other organizations. After approval by the board, these items need to be properly recorded in the accounting records. It is incorrect to neglect to record a donated item, sell it at a lower price, and then record the proceeds as miscellaneous income. A lot of donations may not be recorded in the equipment account, and this may cause such discrepancies. Adventist schools may not see the importance or benefit of keeping these records up-todate. But when administrative control is weak, this may tempt some individuals to commit fraud. It may seem harmless to neglect such matters since other important issues need attention, but this may lead to the discovery that someone is using the school’s equipment for their personal benefit. Suggested solutions:

68 It is recommended that it is important to reconcile the equipment general ledger with the subsidiary ledger accounts on a yearly basis. When there may be many items to review, a schedule should be made that ranks the priority of equipment items that need to be reconciled. Unfinished work may be carried over to the next year; however, this work must be done regularly to prevent this matter from becoming a recurring internal control weakness. It is recommended to conduct a physical count of equipment before the year end and before the auditor comes. Another suggestion is to invest in a scanner and bar code system that can help keep track of equipment items and facilitate physical checks. If equipment is damaged or depreciated, the item should be removed by scanning it out, which may be more effective and efficient than manual counting. 8. Physical/Recorded Inventory Value Differences From interviews with Adventist schools’ administrative officers, 5 out 8 interviewees mentioned yearly physical/recorded inventory value differences which is a major recurring administrative control issue in some schools. Reported challenges: The first challenge is the lack of personnel and time to conduct a reconciliation, and also of the amount of inventory. Why not adjust the differences between the physical and inventory records? Top administrators set the tone of internal control management. Does the management have a proactive attitude, and emphasize the importance of making improvements in internal control problems?

69 A new policy requirement is for a GCAS auditor to be present or witness the inventory physical check using online media. In the past, school administrators were allowed to witness and sign physical checks of inventory items. Suggested solutions: The recommendation to fix or strengthen this internal control weakness is to conduct yearly physical inventory checks of inventory that are witnessed and signed by an external auditor. Some schools should invest in point-of-sale software that uses barcodes and a scanner to be more effective and efficient. If discrepancies are substantial or frequent, the work flow needs to be reviewed, starting with the purchasing, receiving, and recording of monthly reports. In such cases, school management should discuss and implement procedural changes to resolve these problems. For inventory items sold in school stores such as shirts, pants, skirts, Adventurer and Pathfinder uniform supplies, installing a barcode software system is recommended because of the large number of inventory items. Checking the shop inventory balances should be done on a monthly basis because of daily changes in the amount of stock. The store may be closed for a day to count the remaining items, or this may be done outside of working hours so as not to affect the work. Actual product counts of frequently moving items need to be checked monthly and recorded in reports. Another option is to do this before the yearend, with assistance from summer work students, staff, or teachers. This is an ongoing concern at all four schools, so it is suggested that administrators take a proactive approach to making improvements with the school board’s help and oversight. This

70 will help to clear up these problems and to strengthen and improve the internal control management of the schools. And lastly eight internal control issues are briefly discussed, but these former problems have been successfully resolved by school managers. These issues have been cleared up at all four schools and are evidenced by the 2021 GCAS audit reports for Schools B and D. School management has prioritized and followed the recommendations to improve and strengthen the internal controls weakness according to accounting standards. Out of the 16 internal control issues mentioned earlier, the following are the eight internal control management items that the schools have taken remedial action and complied with for the 2021 GCAS audits. 1. Bank Reconciliations Not Reviewed From interviews with the Adventist school administrative officers about the accounting control management in bank reconciliations, all four schools understand their importance and are working to improve monthly bank reconciliation reviews. The two schools that had GCAS audits in 2021 had no problems with this issue. Reported challenges: The challenge that some schools mentioned during the interviews was the limited number of accounting staff members to review and sign the reconciliations. Suggested solutions: Bank reconciliations should not be done only at the end of the year; what if cash is missing during the year? The workers know how it is done. They may be tempted to steal somewhere along the way, so a monthly reconciliation and check can help prevent this. With the increase of scandals and financial scams, it is very important to emphasize internal control, and

71 management is liable for such neglect. The Adventist schools are religious educational nonprofit institutions, but charitable organizations still need good internal controls. It is recommended that the accountant do a monthly bank reconciliation which the treasurer reviews and signs. A check list of what is needed to prepare for the audit should also be available so the staff can prepare required documents in advance by following this list. This will help new accountants or a new treasurer to catch up and not miss out requirements unknowingly, which leads to internal control deficiencies. 2. Journal Vouchers Not Reviewed Daily From interviews about the daily review of journal vouchers, all four schools understand their and are working to make improvements. The two schools that were audited by GCAS in 2021 had no problems with this issue. Reported challenges: The challenge that some schools mentioned during interviews is the limited number of accounting staff to review and sign these vouchers. However, if a school has only two finance office staff, one can prepare the vouchers and the other review and sign them. This is not complicated, but not easy to implement, especially when the number of journal vouchers is large. For example, in case the cashier stole some money and made an entry, and no one reviewed these entries daily, at the end of the month all entries may appear to be balance and reconciled. But actually an unauthorized journal entry was made to cover up the fraud.

72 Suggested solution: For the schools audited in 2021, this issue has been fixed by having another accountant check and sign/stamp journal vouchers daily before they are posted and filed. 3 Authorization Problems From the interviews about authorization problems, all four schools understand the importance of this matter and are working to improve and strengthen the authorization issues. The two schools that had GCAS audits in 2021 had no problems with this issue. Reported challenges: When the administration makes a decision within the sphere of its authority, an Adcom action will be attached for the approved decision. But in case the amount exceeds the authorization and the action needs school board approval, the school needs to wait for the next board meeting, which takes a longer period of time. Spending money that has not been properly authorized can be penalized. For example, the administration may make the purchase first and later attach the board action. Sometimes this is done, but with so many transactions going on, sometimes this is forgotten. When this happens, it is a serious administrative issue, and that is why authorization is very important. Suggested solutions: For example, if the school board is four times a year, this is not a frequent for approval, unless board meeting once a month. Another suggestion the school board members may be given travel allowance because some schools are located far away. Another option if it is not

73 convenient to call for school board members together, school board meeting can be online to save travel time and cost. Administrators’ benefits and allowances should always be approved by the school board, which has an external chair, rather than by the AdCom. All purchases or expenditures by the school administration is to attach the Adcom actions and the School board actions as references. Some schools have also included the action number in the description when posting the transaction. 4. Incompatible Duties/Inadequate Segregation of Duties From the interviews of the Adventist schools’ admin officers, all four schools understand the importance of avoiding incompatible duties and no segregation of duties and are working to improve and strengthen this internal control issue. The two schools that had GCAS audits in 2021 had no issues about this. Reported challenges: Some schools cannot afford to hire additional personal according to the internal control policy, and so incorrectly combine work responsibilities because of their financial limitations. For example, a school cannot hire an additional accountant to have proper segregation of duties in the office. So they have only one accountant who makes payments and receives them too. And for emergencies, the accountant has not replenished petty cash and so uses the cash received first. This is not appropriate for administrative internal control, even for urgent needs.

74 Suggested solutions: In case there are only one or two accounting staff members, it is recommended to follow the auditor’s suggestions for internal control of cash; cash received and cash payments should be handled separately and should not be used interchangeably. If there is only one or two accounting staff members, it is recommended to follow the auditor’s suggestions for segregation of duties. It is a basic control to separate the person paying cash and from the person receiving cash. This is very important since cash is the life blood of the organization. If the organization loses its cash, it will die. If the same person is paying cash and receiving cash, what should be done? For example, when students pay tuition that is received by one accountant, the same money should not be used for disbursements, nor should the same person be responsible for cash payments. This is very important for proper internal control. The auditors can only report the problem, but if management does not comply, the school board should work with school management, report issues needing improvement to the auditors, and endeavor to strengthen the internal controls. To make proper use of the audit service, school board members should ask the management about what has been done in regards to previous audit reports. If the board member does not know, the management will not be asked. Why there is no change? When the school board accepted the auditor’s recommendations, it means that the management must do what the auditors have recommended. But the board members should ask the management to be accountable for following up on these reports so management will not forget and cause recurring problems. In outside organizations, if this year the auditors make a recommendation, then the

75 next year the board will ask for an update, and if the problem is not yet resolved, then the management needs to be responsible. The board members should know their responsibilities, but because the school board meets very infrequently, their focus is on the most important matters. Audit committees should discuss the findings, present their findings to the board, and require the management to respond, and follow up management responses to auditor recommendations. So far as management making changes and improvements, the board should monitor and check on these at least yearly. In the longer term, schools should endeavor to transition to online payment systems, which reduce or eliminate this problem. Students can pay tuition fees directly to banks and provide the deposit slip to the accountant, so the cashier can handle only payout money. Since the money is received by third party, the bank, having only one worker deal with cash is possible, especially with the help of technology. For schools in the city, online payments through smartphones can be another option. Perhaps Thailand Adventist Mission could provide guidance regarding how schools could safely transition to greater use of online payments. 5. More Frequent Cash Deposits From the interviews of the Adventist schools’ admin officers about the administration control issue in more frequent daily cash deposits in all four schools understand the importance and is working to improve and strengthen the internal control issues. The two schools that had GCAS audit in 2021 has no issue about this. Reported challenges: The challenge for this administrative control issue mentioned is long distance to bank, long waiting time at the bank, and lastly lack of personnel. In cases where the school cannot

76 make daily deposits, some schools make deposits twice per week like on Mondays and Thursdays, keeping in the safe during the weekend. The deposits are held for 2 or 3 working days. The auditors will evaluate the school and give frequent or daily recommendation, auditors know if it is acceptable or not. Because we don’t want any worker to be tempted or terminated along the way, to protect people. Suggested solutions: The recommendation is follow auditor’s advice for cash deposits daily or weekly is acceptable and the money kept in the safe. Encourage parents to pay tuition fee online or at the bank. A Christian member is important than money, but if the member has a problem regarding money and has a way to get money unethically, he may be tempted. If money can be borrowed and returned before it is deposited, this is a serious internal control weakness. 6. Miscellaneous Problems with Bank Accounts From the interviews, all four schools understand the importance and are working to improve and strengthen internal control issues related to problems with bank accounts. The two schools that had GCAS audits in 2021 had no problems with this matter. Reported challenges: To open a new bank account for the school, prior board approval is required. The reason why management does not implement this requirement may be because it is inconvenient, but when it becomes a problem, that is not good.

77 There have also been some problems with unidentified deposits because depositors do not always provide the school with transaction information. These amounts need to be reconciled and settled with the bank. Suggested solutions: Don’t wait for problems or consequences related to this issue. It should be the management’s goal that the auditor not find any problems. If the auditor cannot find any internal control issues, this means that the management is doing a very good job. There are schools in which these cases are not significant or serious; just miscellaneous mistakes that should be addressed so that the school may receive a clean opinion. Dependable and capable managers can improve, learn, and grow based on audit feedback. 7. Policies: Asset Purchase/Disposal, Capitalization The Adventist schools’ administrative officers understand the importance of policies for asset purchase, disposal, and capitalization, and are working to improve and strengthen internal control in this area. Reported challenges: Purchases of assets are approved by school finance committees; larger items are taken to the Adcom committee or the school board. Disposal of damaged and depreciated assets must be approved first and then taken out of the system. Policies for capitalization and disposal of assets should be formulated and implemented.

78 Suggested solutions: It is recommended to set up and follow policies for proper purchase, disposal, and capitalization of assets which will help clear up equipment account discrepancies and values. Perhaps Thailand Adventist Mission could draft a generic policy in this area, which the individual schools could either adopt or modify subject to their specific needs and situations.

79 Chapter 5 Discussion a. Brief presentation as per objectives of study The objectives of this research study were to explore practical solutions for the policy compliance problems and internal control management concerns identified in Adventist schools in Thailand. To answer the first research question: 1. To search for practical solutions that will improve the level of consistent compliance with core denominational financial policies in Adventist schools in Thailand. External Stakeholders Challenges Based on interviews with the 11 external stakeholders, all of the participants with less than five years of service or more than five years were aware of and have read through the recurring policy deficiencies from the GCAS reports of the four Adventist schools. Therefore, the number of years of service does not make any difference in their awareness of these problems. This study also showed that the external stakeholders discussed seven of the most common nine policy compliance deficiencies and challenges in the four Adventist schools. The other two issues have been solved based on the 2021 GCAS audit reports for two Adventist schools (B and D), which have complied with church policy requirements. 1. Regular financial statement review requirement: seven out of 11 interviewees shared their challenges with the time required to review the financial statements, human and finance resource limitations, and school board meeting schedules. In addition, Thai government educational support to schools affects the financial statement preparation of the schools.

80 2. Conflict of interest requirement: six out of 11 interviews shared their challenges with the English language forms and their meaning in Thai. Some school board members mistakenly felt that is was unethical to require them to sign such declarations, and school management should prioritize the preparation of these documents for signing at the beginning of the school year. 3. Building insurance requirement: five out of 11 interviewees shared the challenges with the church policy requiring full insurance coverage for old and fully depreciated buildings and using Adventist Risk Management (ARM) insurance instead of local insurance. ARM insurance is more expensive than local insurance, and many documents must be submitted since no insurance officer comes to evaluate the facilities. There are also English language and online communication barriers. In addition, because the Thai government does not require building insurance, some managers do not see the importance of insuring an old or fully depreciated building. According to building insurance practices in Thailand, buildings are insured according to their residual market cost. For example, if a brand new building cost 100 Baht and the assessed current market value of the building is 50 Baht, then building insurance coverage would be 50 Baht (Srikrung Insurance Broker, personal communication, February 6, 2022). 4. Six out of 11 interviewees shared the challenge that some employees are paid too little because of financial resource limitations. Employees who were paid too much was in order to retain qualified Adventist foreign teachers in Adventist international schools. In addition, a cost of living allowance was granted to city-based employees compared to those who worked in the country side. 5. Education subsidy requirement: four out of 11 interviewees shared the challenges faced by employees whose children study in Adventist schools. Church educational subsidies

81 according to church policy are less than what Adventist schools have provided to employees ever since a long time ago. 6. Medical subsidy requirement: four out of 11 interviewees shared challenges with the church policy medical assistance, for which medicines need a doctor’s prescription. In Thailand, a doctor’s prescription is not needed to buy general or common medicine. Schools give reimbursement with original receipts and the medication details from the pharmacist. The pharmacist in Thailand can prescribe medications general and common symptom, or else he/she will normally recommend to check with the doctor. In addition, the schools have provided this service to employees for a long time already. 7. Vacation policy requirement: three out of 11 interviewees shared challenges with the church policy, which is based on employees’ years of service while teachers in Thailand are given summer vacations according to the school calendar. For example, Thai school teachers have a two-week holiday in April (school begins in May) and another two-week holiday in October (Semester One break). Another explanation is that the policy does not fit the teachers’ work style. It is not appropriate to plan their vacations during school days as pastors can do, but it needs to be appropriate for their work schedule. And lastly, the two issues of Audit Committee and Compensation Review Committee appointments have been complied with based on interviews with the four Adventist schools and the 2021 GCAS audit reports for Schools B and D. In addition, a challenge for the school management is to find lay Adventist representative volunteers who are experienced with a specialized knowledge of school finances for these committees. This shows that the four schools are improving and in the process of improving their compliance with denominational policies for effective and efficient work.

82 The second objective of this research study concerns the internal control management concerns identified in Adventist schools in Thailand: 2. To explore practical ways to create a more effective internal control environment in these schools and strengthen its implementation. Internal Stakeholder Challenges Based on the interviews with the 21 internal stakeholders, all of the participants with less or more than five years of service were aware of the recurring issues, and the eight administrative officers have discussed and acted on some of the issues mentioned in the GCAS reports for the four Adventist schools. Therefore, the years of service did not make any difference. This study also showed that the internal stakeholders shared eight of the most common recurring 16 accounting and administrative internal control weakness in the four Adventist schools. The other eight issues have been successfully resolved based on the GCAS 2021 audit reports, at least for two Adventist Schools B and D, which are now in compliance with church policy requirements. 1. Departmental income/expense over-reported is an accounting control issue; seven out of 8 interviewees discussed the challenges of this item, though its importance may not be clearly understood along with the accounting principles involved with this control issue. Another challenge is that the management may have a hard time to track and monitor these transactions due to time and internal control. This minor issue is still recurring for all four Adventist schools since the amount is not material for the financial statements. 2. Erroneous calculation of cash position is an accounting control issue mentioned in 4 out of 8 interviews. These challenges are related to the reconciliation process, internal control

83 weaknesses, review control, and the employees responsible may have reasons for not being up to date monthly. 3. Inadequate allowance for doubtful accounts is an accounting control issue; six out of 8 interviewees shared their conflicts of judgement, with the management saying that all receivables are collectible accounts, so they have decided not to set aside an allowance for doubtful accounts. 4. Reconciliation reports not reviewed is an accounting control issue, with 4 out of 8 interviews mentioning because there were only a few transactions with other institutions during the year, they may have forgotten to prepare or review this report, or may not feel the importance, benefit, and urgency of doing it monthly. 5. Receivables and/or payables misstated, an accounting control issue mentioned in 5 out of 8 interviews. The management may consider this to be a minor issue, and not feel the importance and urgency of complying with this policy yet. 6. Severance allowance lacking or not reviewed, an accounting control issue mentioned in 6 out of 8 interviews. The schools may consider this a minor issue, maybe the accountant is too busy, or the allowance seems adequate so the review was not done. Financial resource limitations and English comprehension barriers were other reasons mentioned. 7. Equipment general/subsidiary ledger discrepancies is an accounting control issue referred to in 4 out of 8 interviews. None one of the schools did these reconciliations, which are part of a larger problem with reconciliations. This can also occur when items are purchased and the equipment is not reported for recording in the system. And another matter may be that management may not feel its importance or benefit.

84 8. Physical/recorded inventory values difference is an accounting control issue that emerged from 5 out of 8 interviews. The schools may lack the personnel to perform this reconciliation, and also when inventory is purchased it may not be reported for recording in the system. And lastly the following 8 out of the 16 internal control issues have been solved and complied with based on the interviews and the 2021 GCAS audit report of Schools B and D: 1. Bank reconciliations not reviewed, monthly 2. Journal vouchers not reviewed daily 3. Authorization problems, different levels of authorization for disbursements 4. Inadequate internal control cash, monthly/yearly 5. Incompatible duties/no segregation of duties 6. More frequent (daily) cash deposits 7. Miscellaneous problems with bank accounts 8. Policies: asset purchase/disposal, capitalization The four schools have understood the importance of these matters and have taken initiative to prioritize and follow the recommendations from the audit reports for effective and efficient internal control management. This showed really good improvement for the four Adventist schools. b. Discussion of results based on proposed research model From this study, the recurring policy compliance issues with the most violations by the Adventist school in Thailand were the governance issues of financial statement regular review and unsigned conflict of interest forms. These matters are overseen by the school boards, whose members are usually the mission officers, different school directors, and pastors who have very

85 busy schedules and much important work to do. However, based on interviews with the four schools and School B and D’s 2021 GCAS audit reports showed a significant improvement. Audit committee appointments and the compensation review committee appointments were not mentioned; the only recurring management issue was inadequate building and equipment insurance. The most common recurring issue in the employee wages and benefits category was employees were paid too much/too little, excessive tuition assistance, excessive medical assistance, and unorthodox vacation policy. The research model represents the two main parts of internal control systems: the accounting controls and the administrative controls. And the most common recurring internal control deficiencies in Adventist schools in Thailand were the accounting control issues of departmental income/expense over-reported, erroneous calculation of cash position, inadequate allowance for doubtful accounts, reconciliation reports not reviewed, receivables and/or payables misstated, and severance allowance lacking or not reviewed. The accounting staff’s responsibility is to complete their assignments; the general and subsidiary ledger posted, reconciled, and agreed; the accounting staff have internal audits or assigned rotations in reconciling work; a monthly schedule for statement reconciliation; recording entry reviews; and reporting file formats. In the administrative control issues of equipment general/subsidiary discrepancies and physical/recorded inventory value differences, the administrative responsibility is to assist in authorization or approval of expenditures; prepare yearly budgets; maintain physical custody of assets; appropriate segregation of duties; organize training programs; and align with the institution’s working policies.

86 These 8 recurring internal control deficiencies reported by the GCAS auditors is a matter that could cause problems. These issues could possibly lead to loss, fraud, or theft. However, there are many improvements seen in the 2021 GCAS audit reports of Schools B and D and in interviews with their school officers. These internal control deficiencies seem more of misunderstandings in the importance of correction, prioritizing the corrections for the benefit of the schools, limited human and financial resources, and maybe language barriers between English and Thai. Therefore, the many recurring internal control deficiencies may lead to the schools’ policy compliance issues. By following the research model flow of the internal control systems of SDA schools in Thailand supported with the two main parts, this will help schools identify internal control problems quickly, so that they may prevent or make efforts to resolve them to avert small amounts of fraud, misuse, or error. Even if fraud cannot be completely eliminated, the knowledge that internal controls are in place can significantly decrease fraud risk. The conceptual framework demonstrates the importance of strong internal control systems in schools to support and provide an effective guide to compliance with denominational policies.

87 Chapter 6 Recommendations a. Summary and Conclusion of the Study An analysis of the interviews with external stakeholders regarding policy compliance deficiencies and interviews with internal stakeholders of the internal control weaknesses for four Adventist school in Thailand found that most recurring problems concerned governance, management, and employee wages and benefits issues. However, with the support and oversight of the school board and management team, each school showed better understanding and improvements in the policy compliance issues. Most policy violations could be resolved so that the schools came into compliance with denominational regulations if follow-up responses to these reports were faithfully made by their Audit Committees, school officers, or School Board members. However, the internal control weaknesses in the four Adventist school in Thailand seemed more about misunderstanding the importance of corrections for the benefit of the school in spite of limited human and financial resources, and in some cases language barriers between English and Thai. The 2021 GCAS audit reports for Schools B and D with the interviews analysis showed that school management was working on these challenges in harmony with their capability, capacity, and the available resources. Overall, the school board should monthly or regularly support and oversee these schools to result in a more effective performance. It is very important that the school management makes a decision to follow the GCAS audit report recommendations as a guide list so that the school’s financial statements will provide an accurate representation of their true financial condition.