May 2016

 

May 2016 Newsletter

 

This Issue

Audit Needed? – Think carefully about what you want to get out of an audit.

Reminder for Charities – We need more from you than last year!

Cash Controls – How to protect the cold, hard cash that you collect.

 

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80/82 Fitzgerald Ave, PO Box 13 625; Ph. 669 0542;

Harald: harald@commaccounting.co.nz; Rhys: rhys@commaccounting.co.nz; Yvette: yvette@commaccounting.co.nz; Nick: nick@commaccounting.co.nz

Do You Really Need an Audit?

Not-for-profits, including Charities, are not required by law to seek assurance (either an audit or a review) about their financial statements, unless they are a Charity with expenses of over $500,000 in a year. So why do so many small not-for-profits engage us, and other accountants, for this purpose?

This article is not about the difference between an audit and a review – the content applies to both equally, but I will use the word ‘audit’ here to cover both.

There are generally two main reasons why smaller not-for-profits have an audit done. The first is that their own constitution requires them to do it. In that case the organisation has no choice other than to change its constitution if it wanted to opt out in future.

The more common reason is funding. Although most funders, and especially not the major funders in the Christchurch area, do not require an audit for the kinds of amounts generally applied for, there is a perception in the sector that it is seen as good practice or somehow favoured by funders if an audit is undertaken.

Different funders have different priorities and different ways of making their decisions. My own conversations with funding staff suggests that having an audit does not give your application an advantage over an organisation that does not have one. Of all the many factors flowing into a funding decision this is not one that will tip the balance either way or even have a major impact, unless there is a lot of financial uncertainty with the organisation that would be true showstoppers. Such uncertainty would be the organisation’s ability to continue operating or the amount of the organisation’s reserves and assets.

An audit tells a funder that the financial statements presented to them are accurate to a high degree. This means that the financial information given to them is reliable, and that is, of course, preferable to a set of accounts with no assurance. An audit (but not a review) also confirms that the entity is a ‘Going Concern’ and if there is any doubt this has to be mentioned in the audit report.

However, an audit done according to International Standards of Auditing provides a much higher degree of assurance than funders really require for their purposes, and this assurance comes with an often hefty price tag. Generally, in my experience funders prefer organisations to splash out on things to do with their core purpose rather than compliance. Demoting the assurance to a ‘review’ does not help small organisations: it would still require a very similar amount of time to perform while giving a much lesser degree of certainty to funders.

The larger an organisation grows the more sense an audit makes, however. Audits are mostly designed to detect ‘creative accounting’ or outright fraudulent activity by management. While a Board remains legally responsible for everything that goes wrong, they may not be involved in the day-to-day decision-making and rely entirely on their Manager and other staff. Trust is good, but prudence may require to go beyond it.

 

Harald

Reminder: We Need Your Outputs and Outcomes.

If you are a registered Charity with a Balance Date on or after 31 March 2016 there are some extra reporting requirements for you this year. This is obviously creating a lot of difficulties for organisations (and a lot of work for us).

Please help us by looking at these resources about what additional information most organisations will have to provide: resource for Tier 4 or resource for Tiers 1-3.

We can work out most of the required information from what we know about you already, but you need to provide us with some outputs (Tier 4) and, if you are a Tier 3 organisation, outcomes as well. If we are auditing you, you will also need to supply information that allows us to verify this information.

If you are unclear about what outputs and outcomes are, please refer to previous newsletters, especially April 2016.

Thanks for helping us out.

Cash Controls

If your organisation collects a lot of cash, for example by running events or performances where cash is accepted, there is a risk that not all the collected cash makes it into the bank account. This is a fraud risk.

You may trust your staff or volunteers, and you may even be hesitant to put any control measures in place for fear that this would be interpreted as a lack of trust. But chances are that you are not performing extensive background checks on your volunteers before you let them collect door charges for a performance or similar. And a box full of cash provides a strong temptation – who would really notice if there were $50 or $100 less in there at the end of the day? Many fraudsters take cash in such situations with the firm intention to pay it back later – but the cash taking continues while the intention to pay it back gets rationalised away.

If your accounts are audited, and you are collecting significant amounts of cash, an auditor will almost certainly give you a ‘qualified’ audit report, pointing out that the total amount of takings could not be verified, unless you have measures in place.

Such measures are:

  • 2 people around the cash box while the event is running. This prevents cash disappearing in an individual’s own pockets, at least in significant amounts.
  • 2 people counting up the cash separately before doing anything else (such as helping to tidy up), writing down the counted amount and signing for it. This prevents cash being taken out of the box between the finish of the event and banking. Having two people doing it protects from any suspicions if it was just one person doing the counting.
  • It may be worthwhile to remove cash from the cash box periodically during the day. In that case the same procedure as above must be followed: Two persons counting and signing for the amount of cash that has been removed. The cash can be stored in a safe place during the day, or banked right away if practicable. The person totalling up the cash takings through the day should not be the same person banking it. This limits the chance of a large amount of cash ‘disappearing’ without anyone noticing.

The best way to tackle controls around cash is by bringing out the little criminal in yourself and imagining yourself in front of a large box full of cash. How would you go about taking some without anyone noticing – and what would stop you?