At the last board meeting, we reported that more time and documentation would be required for this year’s audit in preparation for our annual report. Some board members were concerned about the auditor’s purpose in requesting specific additional information. Others were concerned that information was beyond the scope of the audit and violated the agency’s privacy. The purpose of this memo is to explain why increasing scrutiny and demand for accountability by the public has impacted reporting for not-for-profit and governmental entities and increased our pre-audit requirements.
State and federal regulators are reviewing, in great detail, auditors’ reports of agencies like ours that receive federal grant and loan monies. In other words these agencies may conduct an audit of our audit. Their purpose is to ensure that independent audit firms are in compliance with Generally Accepted Audit Standards (GAAS) and recently added requirements under Generally Accepted Government Auditing Standards (GAGAS) or yellow book standards. Of particular interest to us are the supplemental reporting requirements that require our auditor to prepare a statement of understanding of internal control structure. This includes reporting on our control environment, accounting system, and control procedures.
Since we have recently converted to a computerized accounting system, we must provide complete disclosure on certain aspects of our system. We must provide disclosure on who (board, managers, employees) has access to the accounting system. Auditors must understand and report that certain board members (finance committee) have the clearance to report cash donations from fundraising projects directly through the accounting data entry system and make deposits directly to the agency’s account.
We must also explain why the treasurer can write and sign checks to make purchases, but finance committee members cannot access the check register to report such transactions. The auditor must fully assess the risk involved in allowing volunteer board members access to the accounting system and bank accounts, evaluate the controls we have in place to prevent theft, and prepare a supplemental report on the strengths and weaknesses of our system, and make this report available to the State Board of Accountancy.
As a result, we will provide the auditor with access to the surety bonds, bank signature templates, and access to most computer transactions for all finance committee members. You will find that your cooperation in providing access to this information will facilitate compliance in reporting standards that further protect our interest in receiving federal monies as part of our operating budget.
Williams, J L (Summer 1992). New audit standards for audits of entities receiving federal financial help. Outlook, 60, n2. p.51(1). Retrieved October 08, 2008, from General OneFile via Gale: http://find.galegroup.com/ips/start.do?prodId=IPS
Steinberg, R M, & Johnson, R N (August 1991). Implementing SAS no. 55 in a computer environment; strategies for addressing control risk in entities that use computers to process accounting transactions. Journal of Accountancy, 172, n2. p.60(6). Retrieved October 11, 2008, from General OneFile via Gale: http://find.galegroup.com/ips/start.do?prodId=IPS