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| The view from the bridge |
The objective of the Financial Audit are to enable the Auditor to express an opinion on whether:
- The Finalcial Report presents fairly, in all material respects, the actual expenditure incurred and the revenue received for the Project conformity with the applicable Contractual Conditions; and
- The Project funds provided by the grantor have, in all material respects been used in conformity with the applicable Contractual Conditions.
If you do determine that an audit is beneficial (or required), it’s
important to know that it must be prepared by a licensed independent
certified public accountant (CPA). Once engaged, an auditor performs a
series of selective tests that provide a basis for judging whether the
financial reports can be relied upon.
Auditors will examine, among other things, bank reconciliation,
selected restricted donations (to see that they were handled and
recorded properly), and grant letters (to see that receivables are
accurately stated). In addition, the auditor reviews physical assets,
journals, ledgers and board minutes. Based on this investigation, the
auditor issues a formal opinion about the accuracy of the financial
reports.
During the AICPA Not-for-Profit Industry Conference, Frank Kurre,
national managing partner of Grant Thornton’s Not-for-Profit Industry
Practice, and Donna O’Brien, president of Community Healthcare
Strategies, offered advice for audit committees. They said the audit committee’s primary role is to instill confidence
that the organization’s financial and tax status, internal controls and
compliance procedures allow it to fulfill its mission and achieve
long-term viability. Toward that end, there are two main guiding
principles: Accountability and Independence.
The accountability is to stakeholders, to donors, to grantors, to
organizations that provide financing and to people who use the resources
of the organization. It’s also to society at large, which grants tax
exemptions to recognize the societal value of the services the
organization performs.The audit committee must be independent of both management and the
external auditors. Internal auditors must be independent of management
and must be able to report findings directly to the audit committee.The external auditor’s opinion on the financial statements must be
based only on its independent financial judgment, without improper
influence from management. Board members and management must be independent from vendors, or, at a minimum, disclosure and recusal used.
Internal Audit
Unlike a financial statement audit performed by independent external
auditors, which provides only a high-level consideration of internal
controls as an element of audit planning, an internal audit function
focuses on the details of an organization's policies and procedures with
an objective of preventing and detecting:
- Weaknesses in the design or operation of policies and procedures
- Noncompliance with policies and procedures
- Inefficiencies in operations
- Occupational fraud and abuse
However, internal auditing is not simply about finding weaknesses or
noncompliance with policies and procedures. The Association of Certified Fraud Examiners 2004
Report to the Nation on Occupational Fraud and Abuse found
that the median loss when fraud took place in an organization without an
internal audit function was $130,000. That median loss dropped to
$80,000 when an internal audit function was in place! Why? Because the
frauds are detected much sooner when an internal audit function is in
place. Early detection also improves an organization's chances of
recovery of lost funds.
As further evidence of the value of an internal audit function, that
same 2004 study reported that internal audit as the second most likely
method of detecting fraud (behind tips from employees, vendors, and
customers). The study found that internal audits are more likely than an
organization's internal controls, and much more likely than the
external audit, to result in detection of fraud.
Consulting-oriented internal
audit services are entirely forward-looking, aiming to help your
organization achieve its goals and objectives. Examples of
consulting-oriented internal audit services include assistance with
lease-buy decisions, facilitation of strategic planning, due diligence
in connection with major purchases or acquisitions, design of new
internal control structures for new programs, locations, etc, and many
other services.
European Audit methodology
Verification of the total eligible costs declared
The auditor should conduct its verification on the basis of an inquiry and analysis,(re)computation, comparison, other accuracy checks, observation, inspection of records and documents and by interviewing the beneficiary.
Nonprofit organizations serve the public using funds contributed from donors, and are exempt from paying income tax. Because of their reliance on donors and their tax benefits, nonprofits are held accountable to their donors and the federal government. There are a number of elements that an independent auditor will scrutinize in a financial audit; preparing a checklist of these items can help your organization to come out of an audit unscathed.
The auditor shall examine the following documentation:
• Grant agreement and its amendments
• The final report
For staff costs:
- Salary slips
- Time sheets
- Contracts of employment
- Other documents (e.g. personnel accounts, social security legislation,
- invoices, receipts etc...)
- o Proof of payments
For travel costs and subsistence allowances:
- Beneficiary's internal rules on travel
- Transport invoices and tickets
- Declarations by the beneficiary
- Other documents (proof of presence such as minutes of meeting,reports...)
- o Proof of payments
For Equipment:
- Invoices
- Delivery slips / certificate of first use
- Proof of payment
- Depreciation method of calculation
For subcontracting:
- The call for tender
- Tenders (if applicable)
- Justification for the choice of sub-contractor
- Contracts with sub-contractors
- Invoices
- Declarations by the beneficiary
- Proof of payments
- Other documents: e.g. national rules on public tendering if applicable,Community Directives, etc.
For other cost:
- Invoices
- Proof of payments
- Other relevant accounting documents
The auditor should verify that the costs declared:
- are linked to the subject of the grant agreement and indicated in the estimated operating budget of the beneficiary attached to the grant agreement (please refer to the latest version in case of amendements);
- are necessary to implement the annual work programme which is the subject of the grant (cf. footnote 2);
- are reasonable and justified, and comply with the requirements of sound financial management, in particular regarding economy and efficiency
- have been incurred during the duration of the work programme, as defined in the Grant agreement (with the exception of the invoice for the audit certificate and costs related to final reports);
- are not covered by other EU funds;
- are identifiable and verifiable, inparticular being recorded in the accounting records of the beneficiary and determined according to the applicable accounting standards of the country where the beneficiary is established and according to the usual cost-accounting practices of the beneficiary;
- comply with the requirements of applicable tax and social legislations;
- are in accordance with provisions of the Grant Agreement.
- have been converted to euro at the rate foreseen in the Grant agreement.
The Auditor shall verify whether expenditure includes VAT. If this is the case, the auditor should verify that the beneficiary cannot recover these taxes.The conclusion that the VAT cannot be refunded to the beneficiary shall only be accepted if supported by a statement from the competent national authority.
Read More:
Chron
nonprofit answer guide
the nonprofit times
fidelity charitable
nonprofit resource
IRS
ec.europa.eu
Initial meeting in Office
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