Audit Preparation, Your Organization’s Financial Statements and … Management... ·...

Audit Preparation, Your Organization’s Financial Statements and Internal Controls

Presented by: Mark Payne, CPA – PartnerRae Kerr, CPA – Senior Manager

March 5, 2014

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 AuditWho requires an organization to have an audit? • Board of Directors and Management• Grantors (Federal, State or local agencies)• United Way

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 215.97, Florida Statutes, Florida Single Audit Act.

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 215.97, 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.

Why You Might Want An AuditEven 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.

How Do I Prepare For An Audit?

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.

Sample Engagement Letter

Keep Your Accounting RecordsUp-To-Date, Accurate & Organized

Request To Have A Planning MeetingWith The Auditor

Schedule The Audit

Obtain The Auditor Client Request

Prepare An Audit Package For The AuditorWith Items From The Request List

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.

Other Suggestions ForPreparing 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.

Understanding Financial Statements

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.


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.


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.

Stay Connected

Mark Payne, CPAPartnerJames Moore, [email protected] ext. 308

http://www.linkedin.com/pub/ mark-payne-cpa/63/8ab/b2a

Rae Kerr, CPACertified, Lean Six SigmaSenior ManagerJames Moore, [email protected] ext. 307

http://www.linkedin.com/pub/ rae-kerr/64/155/1a

Audit Preparation, Your Organization’s Financial Statements and … Management... ·...

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