December 30, 2010

How independent will your 2010 "independent" audit be?

It's encouraging that so many current conversations are focused on the future of philanthropy, integration with social media, and non-profit horizons. In this last week of 2010, amid the postal flurry of end-year fundraising appeals, it's also worth remembering the little things that make us worthy of all those big thoughts.  (CONTINUED)
4. Here are more thoughts on conflict of interest, beyond the standard declarations that many staff and board members sign annually:
Often, the same accounting firm handles both the IRS filings and the “independent” audits, using the same team of accountants, year after year. Such audits are not functionally independent and leave the organization vulnerable to wrongdoing and liable for eventual penalties. When the audit firm has no learning curve, no need to ask difficult or obvious questions – no stomach for alienating a valuable client by raising red flags – it is time to SWITCH AUDIT FIRMS. 
Likewise, if the audit committee which REVIEWS the audit results is comprised of those indebted to the organization’s leadership, there can be no realistic expectation of due diligence or objective oversight. Serving on the audit committee should NOT be a path to promotion within the board, and ideally the chair and most members of the committee should have no further affiliation with the organization. For the system to work, there need to be built-in INCENTIVES – not barriers – to make waves. Volunteer treasurers and audit chairs should also have financial aptitude, relevant experience and sterling reputations, so they can hold their own with those more invested in a "clean" audit.

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