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Audits and Audit Committees

 
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Audits

In accordance with VHA Handbooks 1200.17, each nonprofit with more than $500,000 in revenues during the previous fiscal year must undergo an independent audit.  Any NPC with annual revenues between $100,000 and $500,000 must obtain an audit at least every 3 years.  In addition, any organization that expends during the previous fiscal year $500,000 or more in federal funds must undergo a more thorough A-133 audit. One of the best ways to ensure accountability and financial integrity is to have an annual independent audit.

Audit Committees

The board should ensure that the audit is performed in a manner that allows sufficient time for the board to review the report prior to the Form 990 and annual report to VA deadlines.

The board may decide to form an audit committee to separate the audit function from management and to make it clear that the auditor's "client" is the board of directors, not the executive director or other management staff.  The Sarbanes-Oxley Act provides that at least one member of the audit committee should be a member of the board who possesses financial expertise and who is otherwise independent of the organization.  In the case of the NPCs, this is likely to mean that one of the two community board members should be an accountant with nonprofit experience.  Round out the audit committee with the treasurer and one other board member.

The audit committee should solicit and review competitive bids from at least three auditing firms with knowledge of non-profit organizations, generally accepted government auditing standards (GAGAS), and, if expending federal funds, A-133 requirements. The audit committee is responsible for meeting with and evaluating the audit candidates.  After narrowing down the candidates, the audit committee should recommend one auditor for approval by the full board.

After the auditor has been approved, the audit committee should meet with the auditor to review the scope and plan for the independent audit.  Following the audit, the committee should meet with the auditor to discuss the results of the audit and any internal control issues that may have arisen.  Finally, the auditor should report its findings to the full board.  During this meeting, the auditor should also present its recommendations for corrective actions, if needed. A good auditor will take the time to educate the board about its fiduciary responsibilities and how to fulfill them through the audit process.

Note: NPC’s may chose to stay with the same auditor year after year, but about once every three years, it should go through an evaluation process to ensure that the NPC has the best auditor at a reasonable cost.

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