The role of your auditors
June 2009 Supplement
It is a legal requirement under the Charities Act 1993 for charities to be audited
A firm of accountants not only provides the statutory basics, but an independent review of the organisation’s financial controls and wider risks which goes beyond verifying figures.
A well-run charity looks for lateral thinking to add value and regards audit opinion and control points as useful threshold competency.
Some organisations want more of a finance one-stop shop: the audit opinion, controls review, tax and risk management advice, others may use different firms for such non-audit advice.
Why charity audit is different
Charity audit is a specialist area and it is vital to appoint auditors who understand the sector and the way it is regulated. Many charities are also companies and thus the expertise of an auditor is very useful.
However, an expert on auditing banks or manufacturing companies may not be the right choice for a charity. Charities exist not to generate profits but meet an identified objective – success and operational performance is measured differently in a charity.
The primary purpose of the annual financial statements is to account for the stewardship of the funds entrusted to it so accounting systems have to reflect the activities of the charity and provide sufficient information to control and manage them. However, charities’ systems of financial control must also be forward-looking to control risk and identify opportunity.
Basis of appointment
Although a strong personal recommendation can be useful, where a significant fee is involved, charities should go out to tender. When drawing up a list of who will be invited to tender, you need to defineyour requirements.
Do you need none or any of the following back-up services such as: specialist VAT and direct tax, pensions, treasury advice, IT, financial management support, HR and efficiency reviews? This range of services is not going to be available from one individual and a larger firm may be needed.
Figure 1 below summarises the key points you need to bear in mind when embarking on audit tenders and figure 2 sets out a model tender document.
Getting value from audit costs
Almost all auditors operate on charge-out rate for time spent – usually in bands. Whatever pricing structure is agreed, charities need to optimise the use of this time they are paying for, which means planning for the audit in good time, setting a timetable and sticking to it, as well as ensuring there is clear communication between internal and external audit functions.
A clear audit trail is essential – auditors must be able to see how the financial statement numbers have been arrived at. And where the auditor makes recommendations at the end of the audit, charities do need to discuss them and consider the savings on audit time and costs if they are followed.
Author: Clarissa Dann
Clarissa Dann was the editor of Caritas as well as an HR and management online service,he People Bulletin until July 2011.
She is now the editor of the specialist trade finance magazine, Trade and Forfaiting Review which can be viewed at www.tfreview.com but does write on charity finance and investment from time to time.
Clarissa has a background in legal and professional publishing, as well as business journalism and holds an MBA from Cass Business School. She has been one of the judges for the non-profit category of the Chartered Institute of Marketing's Excellence in Marketing Awards for the second year running.
She has also acted as clerk to the trustees of a small almshouses charity and as a member nominated trustee to a pension scheme of a multinational publishing company.
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