Nonprofits and Audit Best Practices
We are living in a world today where financial information is open to the public. Even small fraudulent transactions could be tweeted or shared in the public space, which can damage the reputation of nonprofit organizations.
In order to assure that the financials of nonprofit organizations are reliable and healthy, forming an audit committee is considered as a best practice for nonprofit organizations. The Internal Revenue Service (IRS) now asks on the Form 990 if an organization has an audit committee. If the answer is no, it could undermine the organization with the public. Additionally, having an audit committee is also considered to be a best practice by the IRS.
AICPA Audit Committee Toolkit: Non-for-Profit Organizations, 2nd Edition notes that having an audit committee ensures that an organization provides better:
- Financial results
- Decision-making in terms of accuracy and quality of financial reporting
- Ability to build stronger relationships with stockholders
- Ability to facilitate transition in leadership
In a view of audit best practices, nonprofit organizations need to consider the following:
- Segregation of Duties – Segregation of duties is always critical to effective internal control
- Understanding the IT Environment and Implement – The organization does not have to have an IT department, but at least will need to consider any internal audit or tests on the organization’s IT security regularly
- Written Policies and Procedures – Maintaining written policies indicates that the organization ensures compliance and consistency on the procedures and it means, in other words, less incentive to commit fraud
- Review and Approval – Most organizations have their yearly/monthly budgets. If there are any additional purchases other than anything noted on the budget, review by proper management and approval by board members will be the key to assist in preventing fraudulent transactions
AMR recommends that all of its clients have an Audit Committee and perform an annual audit to ensure a healthy financial organization. This is one of the many financial best practices that clients at AMR incorporate into organizational practices.