COUNT ON IT: Plenty of benefits to be had in an audit for non-profits

WHILE there is no specific requirement under the Incorporated Societies Act 1908 or the Charitable Trust Act 1957, most non-profit organisations will include in their rules the requirement for an audit or review.
This is good practice for an organisation and helps to give confidence to those funding it, whether it be internal members or other parties such as funding agencies.
It will often be a requirement of the funder that an audit or review is completed by a chartered accountant on financial statements prepared by the treasurer.
We are often asked the difference between an audit and a review.
A review is an examination of financial information with the objective of providing a report that nothing has come to the reviewer's attention that does not present a true and fair view - and which may result in the reader obtaining a moderate level of assurance on the financial information.
A review is limited primarily to inquiries of the organisation's personnel and analytical review procedures applied to financial data. A reader of financial statements should not assume that the procedures performed under a review are the same as those under an audit and must be aware that a high level of assurance cannot be placed on the reviewer's report.
An audit is designed to provide a high, but not absolute, level of assurance. Simply put, this refers to the auditor's satisfaction of the reliability of the financial information. The audit involves a review of the organisation's system of accounting and internal control.
This includes making tests of the day-to-day operations and verifying the assets and liabilities of the organisation.
These audit procedures enable the auditor to provide a report to the members that the financial statements give a true and fair view of the organisation's affairs.
Under normal circumstances, the audit report should be free of any qualifications.
A qualification is a paragraph in the audit report which may signify that either there is a potentially misleading item in the accounts of such a serious nature that the auditor wants to communicate his/her concern to all members or that there has been a departure from an applicable financial reporting standard.
Another circumstance when a report may be qualified is when there are no practical means by which the auditor can test a certain item to gain the assurance required to give an opinion. There is quite a common qualification in clubs and societies in relation to cash income. This qualification will read like this: "Control over cash income prior to being recorded is limited and there are no practical audit procedures to determine the effect of this limited control." This qualification usually refers to the activities where donations or cash collections are undertaken.
The auditor has no way of knowing that all money collected or donated has been properly accounted for.
This doesn't necessarily mean they have any doubts about the honesty of the treasurer but that they are unable to carry out any audit checks. There are a number of benefits to an organisation in conducting an audit, aside from the assurance provided. Risk-management areas may be highlighted. Where an auditor identifies a risk, it is likely that it also represents a risk for the organisation.
As they are not involved in day-to-day running, they can identify issues which the governing body is not aware of and can help to identify cost-effective methods of reducing risks. These points are commonly advised in a management letter sent out at the completion of the audit.
This report will detail any significant internal control weaknesses observed during the normal course of the audit and offer constructive suggestions for their resolution. The report will not include all matters that come to the auditors' attention but rather only those matters regarded as important and requiring the committee's attention.
These can be as simple as suggesting a change in the procedure for receipting and recording cash or can highlight deficiencies in the internal controls and systems of the organisation.
 If you are involved in the governing body of an organisation, it is important to ensure you are adhering to the organisation's rules in regards to undertaking a review or audit of your annual financial statements - and to understand its purpose and benefits.
* Disclaimer: no liability is assumed by Staples Rodway Tauranga for any losses suffered by any person relying directly or indirectly upon the article above. It is recommended that you consult your adviser before acting on this information.
Lisa Stirling is from chartered accountants Staples Rodway Tauranga.