Conducting an annual financial review unlike public companies, where this institution is based on public finances. Therefore, it does not need to prove the soundness of its financial resources to shareholders and government agencies.
The reason that led to the establishment of the business to apply audit, is for the reason to adhere to the general requirements of the large enterprises that donate and provide financial aid on regular basis.
a- Benefit of the financial audit for non – profit organizations:
· This action reflects the company integrity, as it provides solid proof for the existing contributors and the expected ones in the future that the contributed money has been allocated in a proper manner, that matches with the organization's vision
· Usually financial audit practices on nonprofit organizations change their scheme and following systems.
· It helps the revisers to review and identify any possible mistakes in the organization's records. Therefore, the organization would do its best to avoid getting into such problems so it would instruct its management members on how to fix that.
· The audit documents most likely attract high-profile contributors as usually they require reviewing the financial data for the nonprofit organization before donation.
· Proper audit operation increases the chances for the nonprofit organizations to get bank loans. On the other hand, false audit applications could cost a big fortune.
b- Audit experts threats to audit the nonprofit organizations
There are many worries the auditors would raise up upon preparing for the audit study. So the highly experienced auditors usually classify the risk factors into three core categories:
· Inherent risk: this type of risk could be inherited in the organization depending on the size of the organization and level of its complexity, even the targeted segment plays a big role as well. The chance to have financial errors, incomplete data, and fraud. Obviously, that’s because of having a lot of auditors. However, the company could resolve this situation by developing strong internal control systems.
· Control risk: despite the importance of inherent risk. The lack of a set of rules and regulations backed with strong systems capable to manage capital during audit operations and others could make it suffer from other types of risks. For example, it’s not recommended to assign the same person the responsibility to collect donations, deposit the money, recording it, and following up.
· Disclosure risk: most likely this risk encounters in case of the presence of the above-mentioned two risk factors. As the chances highly increase that the auditors don’t get exposed to all required documents within the organization.
c- Ideas that help the organization to conduct a proper audit
· Create a lot of guarantees and regulations related to donations and methods to direct them. That could be achieved by splitting of responsibilities as a first step and assure that many parties participated in the task of collecting contributions, deposit, and its distribution inside and outside of the organization.
· Evaluate financial and accounting business systems and transactions related to the organization. The practice shouldn’t be limited to data reports to get the financial track. It’s always better to invest in software systems to increase the level of accuracy.
· Hire an expert accountant specialized in nonprofit organizations field, that’s due to the complexity of accounts classifications for the nonprofit organizations because each treasury or department represents a micro- organization; unlike the regular organizations.
· Support the auditors: usually, the unclear situations in which there is a chance of fraud the person in charge would as a natural reaction try to overcome and hide the facts. Therefore, it’s always better to achieve the organization's objectives to support the auditors and provide them with all the requested requirements. Eventually, that would help to become more effective and on the cause and enhance the company position.
· Conduct yearly audit: that formulates a regular pattern for reporting and prepared regulations; which leads to high appreciation from the contribution sources.
· Enrollment of technology within the internal controls: technology and networks are used heavily to process data nowadays. For instance, it’s important for systems and bank partners to be familiar with the rules and regulations and work within its frames and in case if the organization doesn’t use a system software it’s important to manually track all the financial reports constantly on the database, make sure to keep the all the invoices and the financial transactions as a proof in the records.
However, it’s an obligation on the boards of directors of the nonprofit organization to take the decisions of conducting the financial audit; even though the nonprofit organization doesn’t have the same budget and resources required to complete the audit operations as the regular companies. Although it doesn’t mean that the audit is a time-waster, because audit could assist the nonprofit organizations with a limited size and a certain level of complexity to enhance their sustainability and integrity for the long term.
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