Support for Service Providers > Non Profit Audits
Non Profit Audits
Notes for the teleconference on "Non Profit Audits "-October 27, 2005
Speaker: John Friel, CPA, john@frielcpa.com
Topics to be covered in call:
Obtain a fair audit at a reasonable cost
How do I prepare for an audit?
Managing the auditor
Managing findings
Managing Internal Controls
The Circular No. A-133 is basically your instruction manual. All of the information you need is included in the circular. Make sure you read and re-read it before you begin to prepare your financial records.
Over the past 2 years several items have come to light and the OIG (Office of Inspector General) has begun reviewing audits more frequently and pulling out insufficient reports. The Federal Government is catching up and is now also review audits more frequently. This is all part of GPRA (Government Performance and Results Act), to assess the effectiveness of the federal funds. In particular they are becoming aggressive in looking at management letters with findings.
OMB A-133 Contents http://www.whitehouse.gov/omb/circulars/a133/a133.pdf
• Instruction Manual that describes the necessary part of a Single Audit
• Builds upon itself C, D and E build upon B and A – cannot say read that in the last section you need to read the entire document in order.
Key Definitions:
• Corrective action-pg. 4- This definition give an organization the final say in what the findings may be. This is their opportunity to explain why a finding is not valid.
• Federal award-pg. 4- notice that all federal funds are not necessarily grants- you can be a vendor
• Internal control – pg. 5- If you use your internal controls properly your organization will be able to remove the cloud around some of your financial record keeping
• Major Program –pg.6-Although you may have more than one grant your major funding source should be the focus of the audit.
• Management decision-pg.7- is the actual evaluation that is written and what steps need to be taken to fix the problem.
• Questioned cost – pg.7- Using your internal controls will help to cut down on these.
Subpart B- Audits - pg.8-
Section 200 (a) -Audit Required to Non-Federal entities that expend $500,000 or more in a year in federal awards are required to have a single audit for that year.
Ref to federal awards
(d) States that organization with less than $500,000 in federal award money to be exempted.
Section 215 (a) –pg.11-
States that organizations are able to bill the federal government for their audits and any additional audits.
Section 230 (b) (2) –pg.13-
Cannot charge cost of audit if less than $500,00 is received in one year
Subpart C – Auditee responsibilities -pg.15-
Read 300- Lists the responsibilities of the organization receiving funds.
Section 305 (a) –pg.16-
Read last 2 paragraphs beginning with “ in requesting”- This explains the process for procuring an auditor.
Depart from A-133
Audit Management:
• Audit Model-Preparing for your Audit
• Negotiating the Audit Fee
• Managing Auditors
Steps to Prepare for an Audit:
Classic Model is that your organization prepares:
• Numbers for the year
• Notes to financial statements done on a regular basis
• Schedule of Federal Financial Assistance
• Corrective action plan & status if prior year findings
Effort done monthly
• All schedules/reconciliations
• Year end adjusting entries
Practical Model- done by more organizations
• Only 20% of Non Profits prepare their materials, the remaining 80% of the population has the auditing firm do the work
• Extra work built into the audit fee-if you are looking to cut costs one way is the help prepare the materials for the auditors. This will ensure that your organization understands the numbers given to the auditors.
Other Factors that effect price
• high vs. low risk auditee
• Effect of multiple findings-takes more time to work audit finding
• First year costs-more expensive to set up during the first year.
Negotiating the Fee:
• Ask for the cost if you prepares all items
• Ask for the incremental additional cost for the Auditor to prepare:
– Closing entries
– Schedule of federal expenditures
– Financial statements
– Notes to the financial statements
– SEFA
– Per hour cost for other additional work
Negotiating the Timing
• Obtain commitment of qualifications and experience of audit team
– NFP accounting
– A-133 audit
– Internal controls
– GAGAS CPE
• Obtain commitment for completion of field work and issuance of reports
• Identify deliverables
Audit Prep:
• Understanding the Organization
– Programs
– Who is who
– Control Framework
• Year end closing
– Bank reconciliations were done monthly
– Accounts Receivable
– Accounts payable On A/P vs. subsequent disbursements
– Payroll Taxes
– Prepaid Insurance
– Depreciation
• Grant financial information
– RFP, application and award notification/amendments/correspondence
– Each financial status and program report
– Copies
Managing the Audit:
• Meet planned dates
• “Audit room” and supervision
• Access to finance and grants staff
• "Findings Cycle"
• Interim field work
• Finding deliverables – Exec director, Finance, Program management
This leads into 315 Audit Findings Follow-up - pg.17-
Subpart 500 – 24
(c) Internal Control
It is all about Internal Controls - these will help cut done on any findings you may have.
Reportable Conditions and Material Weaknesses:
Government Auditing Standards requires the auditor to communicate to the auditee in a management letter the following matters unless clearly inconsequential—(a) deficiencies in internal control over financial reporting other than reportable conditions
Remember to never give an auditor an original, copies should be made of everything.
Preparation is key when planning for an audit. Make sure that you are familiar with the A-133 circular and that you meet all of your deadlines through out the year. Planning for an audit takes place all year with the proper internal controls your organization will have a much smoother audit process.
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