Why an audit can be a community director’s friend

However, the audit process can actually be an invaluable one that supports voluntary directors and the executive if approached correctly.

The audit process involves time and cost to the audited organisation as staff and volunteer board members must allocate time to work with the auditors to meet their needs to get the job done. This is especially the case if your organisation’s rules or constitution require an audit to be undertaken or if your organisation is a large registered charity turning over $3 million or more annually. If your organisation’s rules do not require an audit or if the organisation is not a large registered charity, you do not need an audit. However, you may need to have a review if your organisation is a medium charity turning over between $500,000 and $3 million. If you are a small registered charity and your constitution or rules do not require it, you do not need an audit or review. For registered associations, different states have different requirements.

A review is similar to an audit but generally costs less and takes less time. A review can be undertaken by a member of an accounting professional body or by an auditor. However, a review provides limited assurance in relation to your financial report. An auditor provides greater assurance or comfort. The ACNC website has important information pertaining to this issue.

Regardless of whether your organisation has a review or an audit, there are great opportunities during this process for the board and executive to gain confidence in their operations and to identify areas where they can do better—and not just in relation to financial reporting. Working with the auditor, you can develop a longer-term audit plan that focuses on broader issues and allows you to have an independent party investigate and evaluate key threats to sustainability.

Why an audit committee can pay dividends

Rather than expecting every board member to sit on an audit committee, your board could consider creating an audit committee made up largely of members who have audit and accounting experience but who do not sit on the board.

This structure is a good way to recruit volunteer board members over time, and for accounting professionals it is often more attractive than conventional board membership, because it allows them to contribute without having to invest time and money in growing their knowledge base. This structure will also assist greatly when it’s time for your organisation to evaluate your auditor and appoint a new auditor, which ought to be done at least every five years.

The audit committee can assess financial and other risks and work with the auditor to create a three- to five-year audit plan (depending on how long the auditor is appointed for). Such a plan can examine additional risks associated with the organisation’s operations on a rotational basis without increasing costs significantly.

For instance, auditors are generally competent at reviewing the extent to which board policies are actually being applied correctly. This can be very important where the organisation provides care services, and where harm can come to clients and staff if things are not done correctly. The auditor can also be asked to contribute ideas to the audit plan, as they will have a view of the risks associated with your entity.

Audits can inform your organisation

The audit committee can call on the auditor to provide accounting and reporting updates to ensure the organisation understands how changes to the law, regulations, accounting standards and auditing processes may affect the organisation.

It sounds like overkill, but the better your organisation understands reporting and auditing processes, the better it is able to respond quickly and effectively to sustainability threats, and the more likely it is to be financially sound. You have to know what the threats are and what trouble they can cause if you are to manage them effectively.

The audit committee should meet with the board at least once per year and then at the end of the audit process to report directly to all board members and give them the chance to make observations and ask questions.

When the board meets with the auditor, it should do so initially with the executive and then without the executive to ensure the auditor is able to report fully and openly. If you have a members’ AGM, the auditor should also be given the chance to report directly to members as this gives them greater confidence in the board and makes its operations more transparent.

What a board should ask the auditor

When the board meets with the auditor, they should ask the following as standard questions:

• Did you receive timely and effective assistance from staff?
• Do you have any concerns regarding staff capacity and expertise?
• Do you have any concerns regarding the organisation’s financial future or its status as a going concern? Can it pay its bills as and when they fall due?
• Do you foresee any cash flow issues in the short to medium term?
• Did you identify any fraudulent or other activities, or do you have concerns that these types of activities may have been undertaken in this organisation?
• Were any relevant policies and procedures unimplemented or misused during the period?
• Have we met all regulatory and taxation requirements as they pertain to our organisation?
• Have we met all funder contractual requirements as they pertain to our organisation?
• Are there any other issues or concerns that you would like to share with us?

Once the meeting has taken place, the minutes (which detail the questions and answers) should be forwarded to the auditor for confirmation. It is not necessary to send all of the minutes, just an extract signed by the chair and approved by the board.

It’s your audit after all

Finally, volunteer directors must remember that the end-of-year financial report is their report and so they must understand what it says and why. Having access to the auditor is a critical step in developing this understanding, which, in turn, helps greatly in gaining an understanding of the sustainability of your organisation.

The audit process can be complex, and gaining experience in its operation is critical to ensuring volunteer board members and executives are able to work with the auditor to ensure ongoing sustainability. If you approach the process positively it can return significant opportunities for improvement and confirmation each year.