Management of a charitable organisation goes beyond providing services and fundraising. The trustees are also expected to know about the financial management of the organisation. For that reason, a financial audit for charities needs to be treated as an important component of corporate governance and not merely another year-end obligation. Planning will go a long way in ensuring that the process is more orderly and the trustees have sufficient time to sort out any queries prior to the audit.
Understanding the Charity Audit Process
An audit of a charitable organisation will provide an independent assessment of the financial statements of the organisation. The auditor will analyse the supporting data used in the preparation of the accounts and assess the appropriateness of the preparation of the financial statements.
As trustees, it is necessary for them to note that an audit does not imply that all transactions will be scrutinised on an individual basis. In fact, the auditor uses various procedures, such as sampling, verification and assessment of financial information, in order to achieve adequate assurance.
Preparing for the Audit Before Fieldwork Begins
Proper preparation could save an organisation from a lot of trouble when it comes to the delays that may occur during an audit. Instead of being asked by the auditor for information, it would be wise to prepare the documentation beforehand to ensure that everything is available without any trouble.
This is where a charity audit preparation checklist for trustees becomes helpful because it ensures that everyone is on the same page when it comes to the tasks that have to be done.
Review the Financial Records
There should be account reconciliation, inquiry into outstanding items, and review of material transactions. In case there are balances that seem complicated, it is wise to understand them before the auditor raises any questions.
Check Restricted and Designated Funds
The board members should be able to justify the purpose of the restricted funds and show that the funds were used correctly. If there were funds designated internally, then the reasons for the designation should also be known.
Obtain Supporting Documents
The invoices, grants, salaries, donations, and other pertinent documents must be easily obtainable. Having your supporting documents organised will save you a lot of time in case you need to provide certain documents to the auditor.
How Trustees Can Reduce Audit Delays
Preparation can sometimes be very simple. There needs to be someone to coordinate information gathering so that the accounting and trust teams are not getting different information on the same thing.
If there has been a large grant awarded, a new agreement has been entered into, or a large financial decision has been made in the year, the papers should be there and the reasons behind the decision known.
Finally, a list of items to check for when auditing the finances of a charity organisation at year-end can also help find out issues needing reconciliation and clarification before fieldwork begins.
Conclusion
Financial audit in the charity sector does not necessarily have to be done at the last minute. If the organisation’s records are correctly maintained, and there is proper evidence to support them as well as a clear understanding of important financial matters on the part of the trustees, then the whole process can be carried out without much hassle.
Get in touch with Millet Audit for professional advice on charity audit and assurance.
FAQs
What is the purpose of charity auditing?
The purpose of charity auditing is to give independent assurance regarding the financial statements and also to determine whether they have the right evidence behind them.
Does an audit check all transactions?
An audit does not check all transactions but uses sampling and risk-based approaches, among others.
What documentation should the charity have available?
This depends on what is required, but some of the documentation that may be required includes financial statements, bank statements, invoices, payroll information, and other documentation.
When should the trustees get ready for the audit?
They need to start preparing long before the audit is commenced. If the reconciliations are done in advance and all the documentation is put in order, the whole exercise becomes much easier.
Does the audit of a charity equal an independent examination?
No. These are two different types of review and thus offer two different levels of assurance. The charity decides whether it needs an audit or an independent examination.
