Nonprofits: Internal audits still matter

Posted January 20, 2021

Fraud doesn’t simply take a vacation during crises, such as the COVID-19 pandemic. If you are not-for-profit’s internal controls aren’t effective, crooked individuals can find ways to exploit them and steal from your organization — even if they’re working remotely. Other threats, such as financial shortfalls, might also loom. It’s important to continue to schedule internal audits. Comprehensive independent audits help assure stakeholders that your nonprofit is ready for anything that might come its way — including opportunities. Looking for vulnerabilities on its most basic level, the internal audit function provides assurance of compliance with a nonprofit’s internal controls and their effectiveness in mitigating financial and operational risk. Potential risks include fraud, insufficient funds to support programming and reputational damage. Internal auditors, whether they’re staff members or outside consultants, start by identifying a nonprofit’s vulnerabilities and prioritizing them from high to low. Through testing and other methods, they:

Assess the effectiveness of internal controls.
Evaluate compliance with laws, regulations and contracts.
Document their results in reports that include recommended improvements.
Follow up on management’s remediation actions to eliminate identified risks and assist external auditors, when applicable.

The effectiveness of the internal audit function hinges on auditor independence. Auditors should be independent from management and all areas they review to avoid bias or a conflict of interest. Auditors should report directly to the board of directors or its audit committee.

More to offer

Although the internal audit function is often viewed mainly through the prism of compliance and internal controls, it has a lot to offer beyond risk assessments and audit plans. Savvy nonprofits have begun to tap internal audit for strategic purposes. For example, auditors may serve as internal consultants, providing insights gathered while performing compliance and assessment work. While reviewing invoices, they could discover a way to streamline invoice processing. A familiarity with an organization’s inner workings also affords internal auditors with an unusual perspective for evaluating strategic opportunities.

Does your nonprofit have a financial weakness that could undermine plans for continuing current programs or launching new ones?

Your internal auditor probably knows the answer. Ask for more with their cross-departmental perspective, internal auditors can help anticipate and mitigate a variety of risks, improve processes and help evaluate your nonprofit’s strategies.

Social distancing guidelines can make in-person audits challenging right now. But we have strategies for conducting thorough audits while also protecting the safety of audit participants. Contact us for more information.