Whew! That’s probably your reaction when your accountants announce that their audit of your not-for-profit is complete. But even if they have left your premises and returned the documents they’ve reviewed, the work isn’t really over. Not only do your executive director and board need to review the report, but it may be necessary to address concerns by making changes to your organization.
Review the Draft
Once outside auditors complete their work, they typically present a draft report to an organization’s audit committee, executive director and senior financial staffers. Those individuals should take the time to review the draft before it’s presented to the board of directors.
Your committee and management also need to meet with the auditors before the board presentation. Often auditors will provide a management letter (also called “communication with those charged with governance”) highlighting operational areas and controls that need improvement. Your not-for-profit’s team can respond to these comments, indicating ways they plan to improve operations and controls, to be included in the final letter. The committee also can use the meeting to ensure the audit is properly comprehensive.
Assess Internal Controls
The final report will state whether your not-for-profit’s financial statements present its financial position in accordance with U.S. Generally Accepted Accounting Principles. The statements must be presented without any inaccuracies or “material” — meaning significant — misrepresentation.
The auditors also will identify, in a separate letter, specific concerns about material internal control issues. Adequate internal controls are critical for preventing, catching and remedying misstatements that could compromise the integrity of financial statements. If the auditors have found your internal controls to be weak, promptly shore them up.
One important committee task is to obtain your executive director’s impression of the auditors and the process. Were the auditors efficient, or did they perform or require redundant work? Did they demonstrate the requisite expertise, skills and understanding? Were they disruptive to operations? Consider this input when deciding whether to retain the same firm for the next one.
The committee also might want to seek feedback from employees who worked most closely with the auditors. In addition to feedback, they may have suggestions on how to streamline the process for the next engagement.
Your donors, grantmakers and other supporters expect your organization to do everything in its power to ensure funds are used appropriately and responsibly. If you fail to act on issues identified in the process, it could lead to asset misappropriation and seriously damage your not-for-profit’s reputation and viability. Contact us if you have questions, require our service or need help improving internal controls.
To learn more information about how PKF Texas serves not-for-profit organizations, visit www.pkftexas.com/NotForProfit.