From time to time, I get asked about ways to audit the finances of a congregation. Here’s a brief overview of three possibilities. It has been adapted from an original uumoney post by Don Mohr from the UU Congregation of Columbia, SC. Refer to the article, Three Options for Auditing the Finances, to read more.
The goal of a compilation is to take information that is on the general ledger and accumulate it into financial statements in the same format that would come out of a review or audit. The key sentence of a compilation report from the accountant reads, “We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them.”
The goal of a review is to provide limited assurance that financial statements do not have any known errors or departures from the accounting rules found in GAAP. The key sentence in a review report reads, “Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles.”
The goal of an audit is to provide reasonable, but not absolute, assurance that financial statements are fairly presented in accordance with GAAP. The key sentence in an audit report reads, “In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of [organization name] as of June 30, [year], and the changes in its net assets and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.”
Thank you for this information. I would be interested in any information or references to reports or recommendations on how often each of these should be done. In particular, if not directed by state law, how often is an audit needed? What best practices exist? Thank you.
I have been the treasurer at our fellowship for over 5 years. In that time, no audit’s been done, and the last one was by a non-accountant member of the congregation at the time I took over. Now I am expecting one of our newer members will agree to be treasurer when we have our next annual meeting in June 2012. Our/my method of tracking income and expenses is a carryover from that of the previous treasurer, and I’ve no idea of whether it meets GAAP or not! Everything is set up to reconcile with bank statements, and any income/outlay that doesn’t go through the bank is added to the debit/credit columns after the portion to be reconciled. We have fewer than 50 members. Do we need an official audit, and does our district (St.Lawrence) have someone who does those?
Sorry for my slow response to the two blog postings about audits. I actually responded a day ago but I have had some ‘technical difficulties.’
Great questions. My guess is that several other readers have similar questions. Let me start by saying that I am not a CPA, although I have consulted with hundreds of congregations over the past 20 years. Questions about audits are voiced quite often and I have found that congregations are often not excited about my response.
Every congregation, regardless of size, should have an annual review of their finances. No exceptions. And then, every congregation should have an audit conducted by an external (not a member of the congregation) CPA done at least every third year.
I recognize that formal audits can be expensive. But not nearly as expensive as uncovering some years-old financial irregularities. Or, even worse, discovering that there are no written financial documents to be found anywhere.
The Internet has hundreds of posts on this issue. The following five links will be especially helpful.
Please let me know if you have any additional questions.
UUA Director of Congregational Stewardship Services