Exploring the relationship between Auditing and non-profit organizations Essay

This study is for the assignment 1 of auditing, the subject of this study is about non-profit organisation. This study will depict the relationship between scrutinizing and non-profit organisation with following stairss: first it will explicate constructs of these two things and relevant information, so it will come up with three current issues in non-profit organisation ‘s audit, and there are analyse around two instances with suggestions, after that, harmonizing to the above information the study will give a decision and spread out believing about the non-profit organisation.

2. Background:

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As we know, non-profit organisation has two characters different from net income organisation: one is non-profit organisation non for the concern intent and most of them are shown as charity organisation or public organisation like infirmary, art Centre and so on. As non-profit organisation, normally they have founds from contributions or other benefit from society. The other difference is that the net incomes of non-profit organisation are non profit to its employees and stockholders, so its intent is non for maximize the net incomes of its stockholders. Actually, founds and net incomes of non-profit organisation is for its hereafter development like enlargement and usage it for the original belief.

There are events in the recent old ages caused by the scrutinizing job like bankruptcy of Aron Company, dirt of MIC World Com and Xerox Company ; all these events would strike hard people that scrutinizing is a cardinal procedure within an organisation. comparison with net income company, the finance state of affairs is highly of import in non-profit organisation, because stockholders and employees are non ranked in the first place, possibly there are some fraud activities or corruptness, audit its hard currency circle is important, here we need a strong auditing system to oversee it. Besides, the demand of non-profit organisation auditing is increased and the audit public presentation becomes assorted to analyze if the organisation ‘s operation reach a satisfied aim.

3. Non-profit organisation and scrutinizing

As the commission on basic scrutinizing constructs has mentioned that “ Auditing is a systematic procedure of objectively garnering and measuring grounds associating to averments about economic actions and events in which the person or organisation doing the averments has been engaged, to determine the grade of correspondence between those averments and established standards, and pass oning the consequences to users of the study in which the averments are made ” . Normally, audits can be classified that three types: fiscal statement audits, conformity audits and operational audits. And following this study will present the particular relationship between scrutinizing and non-profit organisation.

3.1Auditing definition to Non-profit organisation

As auditing has been mentioned before that it has a of import place in a non-profit organisation, when the hearer follow his responsibilities to look into a organisation, he should maintain his independency and do the auditing procedure is transparence every bit good as the outgo method of a non-profit organisation.

3.2 how a hearers act in a non-profit organisation

Normally, the hearer work for a non-profit organisation is internal hearer which can scrutinize within a broad scope or a narrow focal point, and normally the hearers are the entity ‘s ain employee or the 3rd party from other societal beginning. And they may necessitate to non merely scrutinize the internal operation but besides supervise the ordinance of this organisation. And the common features of scrutinizing public presentation are that examine and measure the recorded files of organisation and so to pass on based on the consequences of scrutiny, and the procedure can be specified as four phases: planning, put to deathing, describing and following up. All of these should follow with the existed relevant auditing criterions.

3.3 current issue of non-profit auditing

For this study, we found three issues that have inauspicious consequence on non-profit auditing ; there are weak internal communicating, deficient application of internal control and deficient staffing.

3.3.1 Internal communicating

Internal communicating is a function portion in the operation within a organisation and it connect the employers and employees together to speak to each other and happen utile information from it, every bit long as to make this to promote the development of a organisation.

And weak internal communicating will convey some bad effects, and the chief three effects are as follows:

First, it will ache the dependability of organisation ‘s fiscal statement. Because weak internal communicating will do the error can non be invoiced in clip and the superintendents can non rectify the information in clip as good ; and employees may disregard some inside informations of their contracts or the contracts has non been recorded ; all the state of affairss like this will do the fiscal statement is non dependable that information is non accurate in the fiscal statement, so the figure will consequence determination devising of the heading of the organisation.

Second, weak internal communicating will bad for the competiveness of the organisation, because weak internal control normally reflect that the construction of the organisation and limitation direction. If there is no serious ordinance to bond the employees ‘ activity and the direction is excessively crumbly, the donators will believe about the hard currency circle of this organisation and worry about if expenditure manner of their money is sensible, so they may take different organisation by compare the internal direction of this.

Third, weak internal communicating encourage fraud hazard in some grade, similar as the grounds mentioned before, if the organisation has no serious limitations and strong communicating between employers and employees, the hazard of errors on fiscal coverage will increased.

3.3.2 Insufficient application of internal control

Similar with internal communicating, deficient internal control besides can increase the hazard of a non-profit organisation. Internal control as a cardinal portion within a organisation, it bear the duty that make certain the internal policies under control ; cheque and assure the truth and completeness of organisation ‘s passage records ; safeguard the organisation ‘s assets ; prevent and detect fraud activity and mistake ; set up the clip to fix dependable fiscal statement. As we can see that internal control have so many of import effects in control a organisation, when internal control suffered danger, the organisation in danger every bit good.

3.3.3 Insufficient staffing

Insufficient staffing usually refer to the state of affairs is that a individual responsible to several responsibilities within a organisation, which is means that sometimes the individual have over force per unit area in his personal work that cause the hazard increased. This state of affairs is normally can be found in some little charities, because the non-business nature of these sort organisation, the employee may work for different place of the organisation, for the low efficient work, there are errors overlooked by the employee or they have no clip to rectify the job has been found which will promote the possible fraud activity of the organisation.

In order to understate the error occurs in the fiscal statement, there is a suggestion should be notice seperate responsibility of authorize minutess, supervising of assets and files should be recorded and classified must be apportioned to different employees. As a non-profit organisation, it should set up the employees ‘ sensible work and inquire aid from outsource when necessary.

4. Case survey of non-profit organisations ‘ audit

As mentioned before, the auditing in a non-profit organisation may endure some jobs ; here are some illustrations to assist to understand the current state of affairs of non-profit organisation.

4.1 illustration of non-profit infirmary

There is a illustration relates to the weak internal communicating, which is about a non-profit infirmary. The infirmary is a charity nature infirmary and its intent is to supply service to assist the hapless people to acquire wellness. There were three people made a study among the infirmary to exam the internal communicating within this infirmary, and chief interviewed people include the leader squad, directors, professional staff like nurse, physician. Harmonizing to the study, they noticed that the infirmary in a weak internal communicating state of affairs which show that the lower degree employees merely do the things the directors allow them make ; and the lower degree employees can non reflect the jobs they found to their heading in clip ; most determination are merely go through by the heading of section, other employees have small alteration to do a suggestion and fall in the procedure. These state of affairss have consisted of a serious weak internal communicating.

Direct to this state of affairs, the writer suggest this organisation should hone the internal limitation of the infirmary that act as a more democratic manner to do determination and better the planning of the communicating within employees, the higher degree directors should have the suggestions from lower degree of employees in clip that make certain the infirmary know the demand of its staff, besides, the internal hearer should link with them in clip every bit good because hearer can state them the jobs have been found and the superintendents can look into and rectify it in clip that to do certain the organisation runs positively.

4.2 Event of Arthur Anderson

Arthur Anderson is a big audit company in USA, which is found by Anthur Anderson and Clarence Delaney in 1913, and so harmonizing to their attempt the company get down to derive really good good will by follow the hearer ‘s professional moral principle, and after that, since Lonard Spacek go the heading of Anderson, the company make a pear of its auditing concern because of its spirit of carnival is higher than net income. But with the universe is a changed, internal section of Anderson holding some difference, and some directors argue some facets for the net income point. Finally, the past largest scrutinizing service agent was asked to discontinue the audit universe due to the bankruptcy of Aron, really it has a serious of dirts before, which includes an event related the fraud of non-profit organisation called Baptist Foundation, which is the largest non-profit organisation bankruptcy instance in American..

Baptist Foundation of Arizona was a non-profit organisation was founded in 1948 in USA with the belief to develop part calling, they sold promissory notes to American church and persons to roll up money and rede their clients to put them as a high return and low hazard manner. The organisation come to a incorrect manner because they invested big money to put in existent estate in 80s 20 century, but the estate ‘s monetary value decreased later that their capital decreased in a short clip, for that they want to conceal the truth by supplying undependable fiscal study. Besides, because the operating expense of their foundation cost, they began to carry their old client to put more and more money into it when they knew that the money would non acquire any return. Obviously, it was a fraud.

Subsequently on, some employees found there are something incorrect in the fiscal statement and they reflect the job to directors but directors were non give them a satisfy reply, for that, several employees include one internal hearer resign the occupation of the foundation.

And in this procedure, the hearer of Anderson for this foundation had ne’er give utile sentiment of the false study and they refused the suggestions of employee from Baptist foundation.

From this instance, we can see from two sides: one of the foundation and one of Anderson. As the foundation facet, there are three jobs:

Weak internal communicating

When their employees had found at that place was something incorrect in the fiscal statement and they communicate to their directors in clip, but directors were non hold them a sensible reply of it, this is the public presentation of weak internal communicating, meanwhile, some internal hearers in this foundation besides suggested Anderson to look into the fiscal study carefully and roll up equal grounds, but there was no satisfied answer every bit good.

Weak internal control

There is deficiency of limitation within this organisation, which reflects that the stockholders and directors start to rip off their clients and study incorrect figures that no 1 can halt them. Finally, the foundation becomes a fraud organisation wholly.

Against criterion of non-profit organisation

The foundation as anon-profit organisation, it went against the criterion that non for concern intent because their stockholders used fraud act to rip off the donators and maintain their ain benefit.

There are many grounds can be caught after some clip subsequently, Anderson audit helped the foundation to conceal some bad finance state of affairs and published undependable study, the chief job in Anderson audit is as follows:

Against hearers ‘ professional moralss

As the resigned employees said that, in the early clip Baptist foundation merely conceal their bad finance and supply dummy information in the fiscal information, but Anderson as a big audit service did n’t happen it out, even it gang up with the foundation with fraud activity, Anderson service has non maintain its professional attention and professional agnosticism.

Not cod equal audit grounds

During the procedure of Anderson audit Baptist foundation, roll uping grounds is a important phase of audit procedure and the audit grounds means that the beginning they get which consequence the concluding sentiment given by hearer. There was no adequate and dependable grounds for Anderson is carelessness and shows Anderson was non responsible to its responsibility.

Not use a trial to guarantee the fiscal study ‘s truth and dependable

Except for the ulterior fraud activity with the foundation, Anderson as an auditing agent, after it received the related fiscal records of Baptist, it did n’t follow a normal procedure to prove the figure if it was dependable and accurate, so this was a cardinal point that Anderson did failed audit every bit good. Here we should detect why we need a dependable study? Because fiscal study reflects the current state of affairs of a organisation and the stockholders can harmonize plane the accounting informations in fiscal study to unclutter the if there is mistakes and better determination devising. As the hearer here, plays a critical function to guarantee the information managers provide. Above all, undependable fiscal study will consequence the development of a organisation adversely.

Lack of independency

An obvious character of good auditing is independency which means that the hearer provide the audit study are non influenced by the manager of an entity. And independency chiefly public presentation in three ways: scheduling independency, fact-finding independency and describing independency.

In this instance, we can see that the hearers in Anderson collude with the directors of Baptist foundation to describe pretension information to their clients and indirectly to assist them rip off the old donators to roll up money. This action violates hearer ‘s moralss critically and shows the hearer in Anderson lacked of independency.

Harmonizing to analyze this instance, we can see that failed audit within a non-profit organisation can be caused by following grounds:

The hearer provide his unqualified sentiment when he can non happen the false in the Audi tees ‘ fiscal study and non prove the truth of these grounds ; the hearer ‘s pack up with the audited organisation, deficiency of independency, published unbelievable fiscal study ; the audited organisation has weak internal control and internal communicating.

4.3 suggestions for the above instances from SAS

There are some suggestions can be found in the related auditing criterions: American institute of CPAS. Statement of scrutinizing criterions is issued by scrutinizing criterions board, and it is portion of AICPA, we can sum up some suggestions after go though SAS 112 which is pass oning internal control related affairs identified in an audit, and this criterions require hearers should measure the hazard of internal control and failing things for important ; communicate in composing to direction that report the lacks and material failing.

In the first instance, we have it has weak internal communicate job ; here we will advert the communicating of an hearer. The hearer ‘s communicating represent as study ball, so when the hearer ‘s sentiment should be honest, just and independency. For the first instance, we can make the things as follows to better the current state of affairs of non-profit organisation:

First, the employees of organisation should roll up the reception of their dealing in order to look into every dealing ‘s inside informations and guarantee the assets ‘ safe ;

Second, the employees should pass on with the degree of directors in clip if they have any thoughts of their minutess and they found admirations in concern things ;

Third, do certain all relevant inside informations of minutess have been recorded and separate responsibilities to different employees to guarantee the efficiency ;

Last, strong the connexion with hearers, which will assist to rectify misidentify that ignored by supervisor and determination devising.

Hearers must maintain independency from the audited organisation.

5. Decision and recommendation

In this study, we chiefly describe three current issues of audit in non-profit organisation, and give two instances to analyze the job related to weak internal communicating, weak internal control and the study besides give the suggestions of it which are chiefly in the communicating and internal control: audited organisation should break the internal direction and have good communicating with hearers, hearers should response to his responsibility every bit good.

Above all, there are still some recommendations to the audit in non-profit organisation combine with the things had mentioned earlier. As an audit in non-profit organisation, there are three facets should be considered more to guarantee the dependability of fiscal study: internal control of non-profit, procedure of auditing, and independency of hearer.

In order to better internal control we should detect the item from follow things:

Organization control: balance the relationship between employees and employers, communicate with each other when needed, notice if there the employees follow the exist ordinance within the organisation.

Procedure and process control: oversee the concern procedure, record in clip ; do certain all process is under control without fraud activity ; segregate responsibilities on authorising.

Document control: do certain the safe of assets harmonizing to record adequate item of minutess.

Security control: usage watchword system to safeguard assets when there are alterations in assets ; utilize conformity proving to exam if the internal control process is effectual.

Compensating control: to rectify mistakes and understate the loss when the error occurs.

In the procedure of audit in non-profit organisation, foremost the hearer should hold a good program with the audit work include the agreement of clip, see the nature of organisation and extent of process to guarantee the audit work can run expeditiously, and so in the process of auditing, the hearers need to detect the passage ‘ record, cognize the state of affairs of the organisation ‘s concern, reexamine the non-profit organisation ‘s income money, and so hearers should look into if the disbursal of this organisation is legal and sensible, besides, it need a ISR audit to guarantee the reported information is dependable.

After that, hearer should give a just and true sentiment of the audited organisation ‘s study in the audit study, eventually, the audited organisation should follow up the reported sentiment that make attempt of lacks.

At last, non-profit organisation ‘s hearer should maintain independency more because the particular nature of the organisation, they should follow the demands to forestall their professional moralss: non influenced by single no affair who he is ; non effected by the force per unit area from audited organisation or a 3rd party ; maintain a honest, just and truth outlook.


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