Different Types of Audit for Non-Profit Organizations

How to define the term Auditing?

Auditing is the independent, careful and systematic examination of a business’ accounts, books, documents, statutory and financial records to confirm their accuracy and consistency with applicable laws, rules and regulations. These laws may be international, national or within the business field.

This process is carried out by external bodies so as to ensure independent opinion of the records. This is upheld by the law.

In cases where there are internal auditors, they serve as employees for the company in preparation for external auditing.

External auditing is necessary because stakeholders and investors need to know what they are getting into. With the information they get from these audits, they can evaluate risks. The more unscathed you come out from the auditing process, the more approval and interest you glean from potential clients and investors.

Non-profit organizations have an edge over profit organizations in that they don’t pay income taxes. This is because; their income is from donors and government interventions. Irrespective of this, they must also be prepared for the process before getting into it. One of the major importance of Non-Profit Organization is that it helps in the overall development of the Society.

Different types of Audit for Non-Profit Organizations

This article will show you the different types of audit for non-profit organizations and how to be ready for it.

   1- Audits performed under the Generally Accepted Auditing Standards (GAAS)

Such audits don’t only cover account balance testing, they also evaluate fraud risks and management/control systems. Organizations that receive a significant amount of government funding or a specified level of contribution from donors are always made to undergo the GAAS.

The GAAS Procedure

Account Balance testing: This involves examination of all financial records to ensure that there are no anomalies in the concern’s records. The balance sheets are checked, payables, revenue, and expenses are evaluated. This way, if there has been any fraud, deception or negligence in the organization, such defect is exposed.

Test of Control: This involves the inspection of documents backing transactions; such as receipts. The auditors need to know how the organization’s internal control systems were developed and if the systems are being followed. The goal of this is to ensure that the organization is operating from a clean standpoint and have no underlying negative motivations for their activities

Test of Compliance with Laws and Regulations: As I mentioned above, the organization must meet international, national and field society standards. Such compliance is checked by the external auditing body. There must be no trespasses no matter the circumstances. Safety and management risks must be kept at the barest minimum.

After the auditing process, the auditors send their opinion on the outcome of the audit. In case deficiencies are found, the auditors send a letter explaining such deficiencies as well as giving suggestions on how to curb such.

   2- Internal Audits

Alternatively, if the organization is not large enough for GAAS, they may employ a team of internal auditors under the financial committee to inspect their books and test for the purpose of reviewing financial & support structures.

  3- Agreed Upon Procedure (AUP)

Under this alternative, the organization may contact an external auditing company with a specific proposed procedure on what is to be scrutinized. It could be a review on transactions above a specific size, etc.

Different steps of the Audit Process

Whichever choice you make, as I also mentioned earlier, any organization that comes out of the Auditing process unscathed appeals more to potential supporters. This is why you must be prepared for the process. How do you do that?  Just follow these simple steps.

  1- Prepare Your Documentation

This is probably the most important thing in preparing for your audit. Make sure all that is necessary is in place and all your records are up-to-date and easy to find. Also, ensure that documentation for every transaction is available. This will save you and your staff the time and stress. The letter of engagement/audit proposal can serve to guide you on what to put in place. Also, the auditors may present your organization with Prep-packets. These are tips on what the auditors will ask to review. You should confirm the format in which the auditors want the documents. If the above is not the case; spare no cost to make sure that everything, to the best of your knowledge, is in the right place for the auditing.

  2- Have a Pre-Audit Meeting

You should hold a meeting with everyone that is involved with the organization’s finances and everyone that will be in place to assist the auditors. This is to ensure that accurate explanation is in place for every transaction that took place during the fiscal year. Make notes during the meeting that will serve as guidelines on the day of the audit. You don’t want any loose ends on that day.

  3- Have a Final Check

Never be presumptuous. Go through your preparations a day or two before the audit. This is to ensure that everything is in a perfect place.