Audit Preparation, Your Organization s Financial Statements and Internal Controls

Transcription

1 Audit Preparation, Your Organization s Financial Statements and Internal Controls Presented by: Mark Payne, CPA Partner Rae Kerr, CPA Senior Manager March 5, 2014

2 What Is An Independent External Audit? In general, an audit consists of an evaluation of a subject matter with a view to express an opinion on whether subject matter is fairly presented. There are different types of audits that can be performed depending on the subject matter under consideration, for example: Audit of Financial Statements Audit of Internal Control over Financial Reporting Compliance Audit Who requires an organization to have an audit? Board of Directors and Management Grantors (Federal, State or local agencies) United Way

3 Types Of Audits Financial Statement Audit During the audit, the auditor will review the Organization s financial statements to determine whether they adhere to generally accepted accounting principles (commonly referred to as GAAP). The accounting principles the auditors are addressing are created by the Financial Accounting Standards Board. Audit of Internal Control over Financial Reporting For many of you this is an audit performed in accordance with General Accounting Office s Generally Accepted Government Auditing Standards, known as the Yellow Book. Compliance Audit For many of you this is an audit performed in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and Section , Florida Statutes, Florida Single Audit Act.

4 Circumstances That Might Trigger The Requirement For An Independent Audit Federal, state, and local governments may require an audit. Nonprofits that expend $500,000 or more in federal funds in a year are subject to special audit requirements (the $500,000 limit is current law, but will be raised to $750,000 in 2015). (OMB Circular A-133) Nonprofits that expend $500,000 or more in state financial assistance are subject to special audit requirements. (Section , Florida Statutes) Some contracts with governments may require an audit. Some banks require an audit as a condition of issuing a loan. Private foundations may request an audit in order to provide the organization funding.

5 Why You Might Want An Audit Even If The Law Does Not Require It To demonstrate that the charitable organization is committed to financial transparency. Required by many public and private foundations in order to be eligible for funding. Remember: A nonprofit can build its reputation for integrity, transparency and professionalism, by having a regular independent audit conducted and making it available to the stakeholder and the public.

6 How Do I Prepare For An Audit?

7 Get An Engagement Letter This will represent the basic terms of the audit. The Ietter should address the following: a. A description of services to be performed. b. Organization s responsibilities. c. Auditor s responsibilities. d. Fees charged and related work. e. Estimated start and completion date of the audit.

8 Sample Engagement Letter

9 Keep Your Accounting Records Up-To-Date, Accurate & Organized

10 Request To Have A Planning Meeting With The Auditor

11 Schedule The Audit

12 Obtain The Auditor Client Request

13 Prepare An Audit Package For The Auditor With Items From The Request List

14 Review Your Grants Review your grant reports to ensure actual reimbursable expenses compare to budget. Be cognizant of any special conditions required by the grantor agency and communicate those to your auditor.

15 Other Suggestions For Preparing For An Audit If you find out you will not be ready for the auditor on your initially scheduled date, contact them and be upfront with them. Typically they would rather you reschedule than not be prepared. Ensure that all key staff are available during the audit week. This is not the week to take vacation. Your auditor will need to have access to finance staff, grant staff (if applicable) and key management, so ensure when you schedule the audit that these staff members will be available.

16 Understanding Financial Statements

17 Understanding Financial Statements

18 Understanding Financial Statements

19 Understanding Financial Statements

20 Understanding Financial Statements

21 Understanding Financial Statements

22 Understanding Financial Statements

23 Understanding Financial Statements

24 Red Flags To Indicate Financial Problems 1. Continued losses year after year. 2. Payroll tax deposits not being made timely. 3. Sales tax deposits not being made timely. 4. Management trying to say things are better than the financial statements say they are. 5. Concentrations from one grantor/contributor. 6. High turnover in the accounting department. 7. Board is unable to speak with the CFO and all conversations must go through the Executive Director.

25 Red Flags To Indicate Financial Problems 8. Accounts payable continue to grow each month. 9. Financial statements coming from an excel spreadsheet and not out of the accounting software package. 10. Delayed audit reports. 11. Last minute financial information provided on the day of the board meeting. 12. Line of credit being tapped out. 13. Continual debt restructuring. 14. Credit cards not being paid off at the end of each month.

26 Red Flags To Indicate Financial Problems 15. Board asking questions and the responses seem vague or no response at all. 16. Board members assuming the treasurer has everything under control. 17.CPA continues to have the same finding year after year and issues never seem to get corrected. 18.Bank statement shows negative balance. 19.Lack of working capital. 20.Receivables are showing as 90 days plus past due.

27 Stay Connected Mark Payne, CPA Partner James Moore, CPAs ext mark-payne-cpa/63/8ab/b2a Rae Kerr, CPA Certified, Lean Six Sigma Senior Manager James Moore, CPAs ext rae-kerr/64/155/1a