The Role of an Auditor in a Non-Profit Organization

A scope of Non-Profit Organization

This sector is very diverse with organizations handling from thousands to hundreds of millions of dollars in funds per year. However, despite the size and scope of any of them, corporate governance is the basic character that they have. This has seen the necessity of audit committees face some difficulties in being set up in these non-profit organization and is thus very important to understand the roles and importance of said committees for those organizations that have embraced them.

Corporate governance has been the organization’s main focus since the implementation of the Sarbanes-Oxley Act, 2002. Member of the accounting committee has however been trying to push for the same rules to be implemented to NGOs and focus more on stronger fiscal accountability. NGOs usually have audit committees who are assigned various roles as discussed.

Understanding the NGO / Non-Profit Organization

Due to criticism that these organizations have weak internal controls due to lack of segregation of duties, poor training, understaffing just to mention but a few, these organizations have tried to compensate by having audit committees.  Their most critical role is to oversee internal controls and management of risk. Understanding the difference between an NGO and a for-profit organization is crucial in fully grasping their roles to the board and committee members. The differences are stated as follows;

1. An NGO’s mission is philosophical rather than profit making.
2. NGOs funding and support is from the public, the government of foundations rather than customers or clients.
3. NGOs are exempted from taxes
4. NGOs have an obligation to donors and the public rather than stockholders to accomplish its mission.

In order to ensure that the following are well implemented, the audit committee becomes an extension of the organization’s board.

Roles of the audit committee

The audit committee takes part in the mentoring of senior staff. They also evaluate, hire and interact with independent auditors. Both the audit committee members and the board have a fiduciary duty benchmark to meet which is to the kind of care that an ordinary person would if in the same position under similar circumstances. A member of the committee should understand;

1. Financial statements
2. Financial risk
3. Business decision impact on financial statements
4. Identify balance sheet risks
5. Understand and recognize revenue issues on the financial statements.

An audit committee charter should consider the following when forming the audit committee. This is the document that is used to form the audit committee and if no member understands the above aspects then an outside consultant should be appointed. According to a Statement on Auditing Standards number 114 (AU 380), the auditor’s communication with those charged with governance, the matters which must be discussed and during what phase of the audit, those discussions must occur and will include an overview of the planned scope and timing of the audit and what representations the auditor is requesting from management. This helps the NGO meet their accountability goals always.