There are several types of audits and here are the iterations
- Who
does the audit
- Internal Audit – this is done in-house by the treasurer or an independent audit committee. Usually this is free (done by volunteers) and is not in-depth. It is a spot check on the accountant who’s doing the books. I’ve got a one-page sheet describing how this can be done.
- Independent Audit – this is done by an outside CPA firm and it costs $4,000 to $15,000 depending on how many bank accounts you’ve got and how much they’ve got to hunt for info. The more they hunt, the more time they spend, the more they cost. Keep it SIMPLE!!!
- Types
of audit –
usually done by CPA firm but could be done internally. An outside auditor gives members more peace
of mind. Audits done by church volunteers consume a LOT of time which volunteers
could be doing something else and it makes donation info available to fellow
members.
- Financial Procedures Audit – this is to ensure that the people handling the money, deposits, checks, cash, bills, etc. are doing it the proper way. Auditors have a checklist of literally about 200 questions.
- Financial
Figures (the first two are not typically good enough
for banks to give loans)
- Review – someone looks at your internally-produced financial statements and states they look okay or not; the auditor will suggest improvements and changes as necessary.
- Compilation – someone takes a pretty close look at your internally-produced financial statements and mostly replicates those financial statements on their letterhead; the auditor will suggest improvements and changes as necessary.
- Full Blown Audit – someone spends several days at your place reviewing anything and everything they want and asking a ton of questions. At the end, they produce a set of financial statements that are accepted by banks and lenders and others. They will write up a management letter which tells the top management of the church what things need to be changed, improved, started, and/or stopped. It is thorough. It gives peace of mind to members and donors.
My recommendation:
- That the church treasurer or an independent audit committee of church members (not related to the Finance Committee) do an internal audit of the check register and/or general ledger every month
- That the church contract with an external/independent auditor to conduct a full-blown audit every other year and include a financial procedures audit. IF the audit firm can state that doing it once a year will be almost the same price as every other year, then do it every year.
The SECRET to a good audit: Have a filing system that is so simple, clean, & clear that anyone can find any document within one minute. I do that kind of system at all churches I consult with. At a recent audit, the auditors were on site for just one day and they had planned three days – that saved the church a LOT of money and got the auditors out quickly.
Lead On!
Steve
www.churchbestpractices.org – all kinds of FREE church manuals and sample documents
www.financeforchurches.org – 400 plus blogs on every church administration topic you can think of