| Many prospective donors are very skeptical about | | | | contributions are being used as intended. |
| making donations, fearing that their money will not | | | | (7) The auditors will be looking for an audit trail--It |
| be used properly. A nonprofit or church audit is a | | | | provides very important checks and balances for |
| process that provides reasonable assurance that | | | | sums received and expended. |
| good stewardship is being used in handling and | | | | In general, most nonprofit or church audits are |
| accounting for donor's money and other assets of | | | | internal, consisting of selected auditing procedures |
| the nonprofit organization. | | | | performed by individuals inside the organization |
| The audit can be performed by external | | | | rather than by an outside CPA. This approach is |
| Accounting firms (or by an outside Certified Public | | | | useful in reducing the cost of internal control |
| Accountant). It can also be done internally-in which | | | | measures and audits. |
| case the books are reviewed by selected | | | | These internal audits can be continuous, thus |
| non-related officers, or by prominent people in the | | | | ensuring daily compliance. The internal auditors will |
| nonprofit organization who understand financial and | | | | most likely develop an audit program and an audit |
| business management. These internal individuals | | | | schedule that will be checked off. Most CPAs are |
| should not be related in any way to the Financial | | | | knowledgeable in this area and should be consulted |
| Officers, thus avoiding a conflict of interest. | | | | for initial set up and training assistance. |
| You may be pondering the idea of having an audit | | | | Those nonprofit organizations-including small |
| done in your nonprofit organization. You may be | | | | churches-who do not conduct audits or have a |
| thinking of the cost, or the time involved. Listed | | | | set of written principles, should consider doing this |
| below are some of the many benefits why you | | | | as a necessity. From a practical standpoint I recall |
| should have an audit done-the list is not | | | | being the Secretary/Treasurer of a small church |
| exhaustive: | | | | that did not conduct audits. However we ensure |
| (1) A Charitable organization must comply with all | | | | that there were adequate internal measures in |
| applicable federal laws and regulations, applicable | | | | place to ensure accountability. |
| laws and regulations of the states and the local | | | | The scope of this article is not to set out detailed |
| jurisdictions in which it is based or operates. An | | | | internal control measures, consequently the list |
| audit should ensure there is compliance. | | | | below is a partial representation of the control |
| (2) An organization conducting charitable programs | | | | measures necessary: |
| outside the United States must also abide by | | | | • Do expenditure budgets, obtain members |
| applicable international laws, regulations and | | | | and board approval to ensure planning and cost |
| conventions that are legally binding on the United | | | | control. |
| States. | | | | • Depositing all receipt intact; no removal for |
| (3) It will help to protect the officers of the | | | | church expenses. |
| corporation who are in charge of financial | | | | • At least two responsible individuals count |
| responsibility, from unnecessary charges of | | | | and sign off on cash receipt. |
| carelessness or misappropriation in handling funds. | | | | • The church accounting done by persons |
| (4) It sends a favorable message, and builds the | | | | that do not handle cash. |
| trust and confidence of the financial supporters of | | | | • Two signers needed for all checks. |
| the organization, who have a vested interest in | | | | • Check requisitions mandatory, itemizing |
| how their money is being spent. | | | | items to be purchased. |
| (5) It encourages good habits of fiscal | | | | • Expenditure cost justified and for a church |
| responsibility to ensure that new employees will | | | | purpose |
| more likely continue to follow accountability | | | | • No commingling of church funds with |
| principles already in place. | | | | personal funds. |
| (6) It will assure that contributions made to the | | | | • Periodical meetings with members to explain |
| organization with stipulations as to how the funds | | | | the finances. |
| should be used, are consistently used in | | | | • Invite active participation at meetings |
| accordance with the donor's instructions, | | | | • Sending out annual statements to all |
| conveying to donors the assurance that their | | | | contributors. |