DOES YOUR CHURCH NEED AN AUDIT?
High financial scrutiny of public companies and increasing incidences of fraud discovery are causing churches to wonder if they need an audit. One question often asked is, “How much does an audit cost?”
Congress and standards disseminated by the industry itself have besieged the public accounting profession with new regulations. More stringent standards require more work and more resources. Ultimately, these costs must be passed on to the clients.
So the answer to this recurring question results in a price that exceeds what many faith-based fellowships can pay. This situation is especially problematic at a time when contributions have been limited by economic stress and the assets of charitable groups are stretched thin.
What are the alternatives to assure donors of fiscal accountability? Accountants can offer lesser levels of service, typically a “review” or perhaps a series of “agreed upon procedures.” Both of these terms have specific meanings to the accounting profession.
A review is a series of analytical procedures applied to the financial statements and inquiries of the administrative staff. It is well below the level of an independent audit, which also seeks external confirmations, studies the system of internal control, and collects a series of transactional tests to allow the auditors to render an opinion of whether the financial statements fairly represent the report of activity of that institution.
But a review does provide some assurance about the reliability of the financial statements. Less work is done to issue this report and the cost will be somewhat lower than an external audit.
Agreed upon procedures reports are just what the term implies. The accountants and the organization agree on a series of procedures that are performed by independent professionals and generally concentrate on areas of financial reporting and accounting processes and procedures that may be of concern. You could call it a limited audit, because the engagement is limited to what the parties want to complete.
Of course, these alternatives may still be beyond the budget or amount a church is willing to commit for professional services. The last option available, which holds no legal recognition in the law, is an internal audit.
Members of the local church can conduct an internal audit, or willing individuals outside the organization can do it, by following similar procedures to an audit firm. The reports don’t carry any recognized standard, but they do offer some comfort that credibility exists in the financial reports of the church, and they provide a level of accountability for the bookkeeping personnel, which might not otherwise exist.
By state law, only a CPA firm is allowed to perform either an audit or a review, since the specific expertise requires regulatory competence. Agreed upon procedures may or may not need a CPA depending on the type of report to be issued after the engagement is completed. An internal audit can be done by anyone.
The next blog will outline the fundamental operation of an internal audit committee. Only an attest engagement performed by a CPA firm should be relied upon for representations to anyone outside of your church unless the reader of those statements is fully aware that they are looking at internally prepared financial statements.
