A nonprofit or church audit is a process that provides reasonable assurance that good stewardship is being used in handling and accounting for the funds and other assets of your organization.
The audit may be external (performed by an outside Certified Public Accountant) and/or internal (reviewed by business people in your organization who understand financial management and are not related in any way to the Financial Secretary or Treasurer).
Build the trust and confidence of the financial supporters of the organization in the way their money is being accounted for;
Set habits of fiscal responsibility to assure that when there is turnover in personnel there will be continuity in accountability;
Assure that
contributions
made to the organization with special conditions attached are consistently administered in accordance with the donors' instructions, and thereby letting donors know their contributions are being used as intended;
Provide checks and balances for sums received and expended.
Remember...an audit is not a reflection on the competence or integrity of your financial staff. Rather, it is a routine procedure designed to protect both your staff and your church or nonprofit.
What does a nonprofit or church audit do?
An audit should:
Independently verify the reports of the treasurer(s);
Follow the funds and see if proper steps are being taken in handling them;
Document that donated funds have been used as stipulated by the donors.
In addition to tracking the cash through the system, an auditor typically will evaluate:
Accounting controls (systems that reduce the possibility of loss or errors);
Segregation of duties (assurances that more than one person is involved in critical steps in handling money so that there can be checks and balances);
Reasonableness of systems and procedures in the light of all factors, including the size of the organization and its budget;
Adequacy of insurance coverage;
Records that show donors' stipulations for the use of contributions made to your organization.
What kind of information does an auditor need to look at?
Whether it is an external or internal audit, there are certain documents you will need to have available.They are:
Copies of all your organizations policies and procedures related to finance and treasury functions and copies of minute approving those policies.
Listing of all bank and investment accounts, including the person authorized to sign on each, and including any special use accounts under the control of the pastor(s) or administrator and in the name of the nonprofit or church.
All financial statements for each month of the year, plus December of the prior year and January of the subsequent year (a fourteen month period).
Bank and investment account statements for the same period.
Bank reconciliations for that same period.
Original books of entry, which will be the general and subsidiary journals; for those books that are computerized, a print-out of all transactions by account for the entire year.
All paid invoices, payroll data and files (including 941's, year-end W-2's, 1099's and transmittal forms), income transmittals and deposit records for the fourteen month period.
The Financial Secretary's records and other income records for the same period.
What is an internal audit
An internal audit consists of selected auditing procedures performed by individuals inside your organization rather than by an outside CPA.
Internal audits can be a very cost effective means of improving the organization’s system of internal controls without the expense of a full scope outside audit.
What is the purpose of a internal audit?
The purpose of many of the internal audit procedures are to ensure that the organization’s system of
internal controls
are operating as intended.
The internal auditors (which very well could be volunteers from the organization’s financial committee), should develop an audit program and an audit schedule.
Your nonprofit or church may want to consider consulting with a CPA who is familiar with auditing to assist the organization in designing the internal audit program and training the internal auditors.
Once the audit program has been effectively designed and documented, the nonprofit or church should be able to use the program for several years with only limited involvement of the outside CPA.
Who can perform an internal audit?
Generally, a person(s) who is "qualified" to perform an internal audit will have some experience with accounting principles, such as those gained through bookkeeping, office management, or accounting courses.
The person(s) must have the time to devote to the internal audit as it is quite a lengthy process. See an
internal checklist guideline.
Sometimes a small church or nonprofit will agree with another small church or nonprofit in the same locale to have the treasurer of each audit the other.
Often churches have accounting professionals in their congregations who are not serving that church in any of the financial positions who are willing to perform the audit as a donation of services.
Generally, a person(s) who is "qualified" to perform an internal audit will have some experience with accounting principles, such as those gained through bookkeeping, office management, or accounting courses.
