Case 3.3
1. Identify and briefly describe fundamental and cost-effective internal controls that charitable organizations could implement to reduce their exposure to theft losses.
Fraud has been on the rise over the past decades, and America’s charitable communities have not been immune to these acts. With the tremendous expanding, charity organizations have controlled a lot of financial and nonfinancial resources. While it is common that many small and medium-size volunteer organizations have lack of continuity of volunteers, short of supervision of volunteers, poor of segregation of duties, absence of internal auditors. Even though the Sarbanes-Oxley Act of 2002 does not mandate an internal audit for nonprofits, Non-profit
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Defend your answer.
Audits are an important legal accountability tool used by resource providers (donors, grantors, and others) to assure that resources are spent by nonprofit organizations in accordance with the resource provider’s intentions. However, there is a lack of audit pricing literature for this important group of organizations.
Size, complexity, non-audit fees, and nature of the charity were found to have a significant effect on audit fees.
Many small and medium-size charitable organizations do not have the internal control accounting expertise to prepare the reliable financial reports. CPAs should performance a variety services, involve in the client’s internal control over financial statements in order to improve the quality and reliability of the financial information. As a result, CPAs should prevent or detect and correct misstatements in the financial statements or management’s financial information.
Most big charity organizations conduct their auditing activities through special audit committees and internal control systems that are supervised by the board of directors.
Usually 8% was the fee estimate used for quoting new client audit fees for profit entities.
However, for small (under $300,000 of Support and revenues excluding in-kind) NPOs which are not subject to OMB A133 rules the audit fee may be as high as 5% of total support and revenues. The audit fees seem to increase as a percentage as the audit requirements increase (ie,
Should the increased audit fees charged to clients be the basis for the increased costs calculation? Another area that could be considered a loss is the loss of non-audit or consulting fees to the public accounting firms. Further, are the indirect costs, such as the consideration of lost opportunities that are attributable to the Sarbanes-Oxley Act of 2002 (Jahmani, Yousef; Dowling, William A., 2008). Another cost to comply with Sarbanes-Oxley Act of 2002, was the PCAOB inspections. Public accounting firms put great effort and much money into preparing for a PCAOB inspection due to how detailed the inspections could be.
The effective use of IA departments causes less dependency and or reliance on external auditing. Ineffective use of this department can create reliability of the external audit firm, high costs for use of their services. Ideally, effective auditing should be done twice a year, consist of a short period of attendance; whereas, if it is possible for charities to have an internal auditing department, auditing will be carried out as often as every three months and the likelihood of any mismanagement of funds will be greatly reduced and this lead to gradual abolition. For effective IFC practices, various functions should be implemented to address each area so that effective operations are in place and at the same time reduce
Fraud is a problem that nonprofits must be prepared to prevent within their financial departments. Embezzlements and financial statement fraud can destroy the financial health of a nonprofit organization and undermine the organization’s mission. Skimming is particularly difficult to identify because the money is often taken off incoming funds before the donations are ever annotated or accounted for (Zack & De Armond, 2015). However, these financial woes can be easily avoided. Nonprofit Quarterly identifies the issue of financial fraud as a “people problem” (Zack et al, 2015). Financial departments within corporations are required to follow strict laws and regulations that are not required to be followed by nonprofit organizations. The Sarbanes-Oxley
Elder, A. A., Beasley, M., & Elder, R. J. (2014). Auditing and assurance services (15th ed.). Upper Saddle River, NJ: Pearson.
receive donations which is the lifeblood of an charity or non-profit. This paper will discuss the
Auditing firms are no longer able to focus primarily on selling additional services. Instead, they are now concerned with providing excellent service to the client. This has resulted in additional tax and financial reporting
Proper conduct and ethical behavior are important, because auditors are party to confidential information and it is important this trust not be abused. This essay discusses the purpose of the American Institute of Certified Public Accountants (AICPA) and delves into the definitions of the six principles of the Code. It explores to whom this Code applies and what should be considered its key principle. The next
Legitimacy in accounting practices is ensured by the check and balance of having independent auditors from registered public accountant firms reviewing financial practices. The report features eleven sections and these sections pertain to accounting overview, independence of auditors to reduce interest conflicts, corporate responsibility, financial disclosures, tax returns, criminal fraud and various elements of white collar criminal activity (107th Congress
With the induction of SOX, Section 301 dictates that the boards of directors for each publicly traded organization are required to fund and create an internal audit committee or have the entire board serve as the committee, with a minimum of three independent members, accountable for selecting and directing an external independent accounting firm responsible for confirming the integrity of the organization’s financial reports, and creating a process to address
This research paper is being submitted on March 10, 2013, for Tiffany Krogman, A340/ACG3085 Section 03, Advanced Auditing Concepts & Standards.
Arens, A. A., Elder, R. J., & Beasley, M. S. (2013). Auditing and Assurance Services. Old Tappan, NJ: Pearson Education.
The IRS is concerned with the following areas in relation to its operations: cost allocations, excessive executive compensation, and organizations operating outside of their tax-exempt purpose. A tax exempt organization will attempt to allocate all fundraising costs to other program expense accounts in order to improve their program expense ratio. This will show that less dollars are spent on fundraising and more are spent on the organization’s programs. Excessive executive compensation can also be a problem if it is deemed
OMB A-133 OMB Circular A-133 is a huge intensive United States federal government guide which is created by the Office of Management and Budget. It establishes requirements for audits of States, local governments, and Indian tribal governments which manage Federal financial assistance programs and Federal grant programs. In 1985, OMB Circular A-128, “Audits of States and Local Governments” was issued by the Office of Management and Budget (OMB). Then, in 1990, OMB Circular A-133, “Audits of Institutions Of Higher Education and Other Non-Profit Organizations”, was issued to extend the process of the single audit to nonprofit organizations.
Surysekar, et. al began by gathering information regarding restricted donations. Often, NFP’s expand their activities beyond the organization’s mission and skill set. This can lead to the misuse of funds as well as fraud. Donors impose restrictions to ensure that the money is used for activities that they value while simultaneously meeting the goals of the organization (64). Donors can impose restrictions such as the following: 1) the organization may only use the interest from the donation to meet the goals of the NFP or 2) the donation may only be used for a particular purpose or program. However, restricted donations may inhibit a NFP’s ability to grow (65).
The National Audit Office (NAO) is responsible for the financial and “value for money” audits of central government expenditure, as well as other publicly related bodies. Although there is no single definition for what a value for money audit is, the most widely accepted definitions connect value for money audits with the review of the three E’s (Lecture 2, AC340 Lent Term, Liisa Kurunmakii):