Is an audit right for you?
The new year is here! The new year often inspires resolutions and goals to make changes for the better. Perhaps your nonprofit has made goals focusing on operations and recordkeeping, fundraising, or programs. All of these are important and worthy areas, but, for today, this blog will focus on operations and recordkeeping goals.
Far too often, I hear that nonprofit board members, executive directors, volunteers, and other supporting constituents recommend that their organization have an annual audit. There are many common misconceptions when it comes to having an audit. As year-end close preparations are underway, it is important to understand what a financial statement audit can and cannot do because, often, an organization does not need an audit. For example, as noted in Uncover Insights You Can’t Get From Your Audit, if you have questions regarding controls, efficiencies, and security, the answers may actually be elsewhere.
You may believe that an audit will help your organization prevent fraud and increase controls. This is actually a common misconception. While auditors have a wealth of knowledge and recommendations that can help, an audit is not designed to catch fraud. In fact, in the recent Occupational Fraud 2022: A Report to the Nations, copyright 2022 by the Association of Certified Fraud Examiners, Inc. (ACFE), only 4% of occupational fraud was initially detected by an external audit engagement. This report showed that the top ways fraud was detected was through:
- Tips – 42%
- Internal Audit – 16%
- Management Review – 12%
- Documentation Examination – 6%
- Account Reconciliation – 5%
Instead of engaging auditors and hoping solutions come from it, organizations should consider conducting their own internal examinations focusing on processes and controls and working to resolve those identified vulnerabilities. Conducting regular, detailed reviews of financial data and their related processes and controls can help increase consistency and accuracy. Software, technology, and other applications should be reviewed for appropriate access, and they should be optimized so that automation helps minimize those manual tasks. Lastly, do not go it alone. Consult with your professional service firms to help. A focused operational assessment specifically tailored towards the people, processes, and technology of your organization can address many of these operational and recordkeeping resolutions.
As we begin the new year, it is important to get off on the right foot. Below is additional content that expands on the topics discussed above:
Nonprofit Fraud Awareness and Prevention Strategies
Study Shows Continued Fraud Risk — 6 Steps Can Help Protect Your Nonprofit
Getting Creative in Midst of the Labor Shortage
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