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Brady Gabel, Author at Ketel Thorstenson, LLP


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September 5, 20180

Brady GabelAs the end of the year approaches, nonprofit organizations have many items to plan for the new year. One of these items may be replacing members of its governing board.  Often times, the strength and operational success of a nonprofit organization depends on the engagement, devotion, and knowledge of its board of directors. As such, it is extremely important for nonprofit organizations to plan for board succession. What should a nonprofit organization look for in new board members? How does a nonprofit organization solicit new board members?

In looking for new board members, an organization should first consider the size of their organization and the time commitment required. Organizations should only consider new board members who will have the ability to complete the obligations to the board. The organization should properly communicate the requirements of serving on the board to prospective board members to eliminate the possibility of board members not meeting expectations.

The type of board positions should also be considered. For example, if a treasurer position on the board is opening, organizations should look for candidates who have a financial background. Organizations may also benefit from candidates who have past experience serving on other nonprofit boards or those who have industry experience in the organization’s area of operations. Organizations should start by asking what does the nonprofit need to advance its mission right now and in the future? A board member with financial expertise? Connections in the community? Someone familiar with the individuals served by the nonprofit?

After considering the type of candidate the board is looking for, the next path is soliciting new members. Resources from existing board members is an obvious first step an organization can take. Existing board members may have a friend or colleague who would make a great board member. If a specialized board member is needed, such as a treasurer, an organization may consider reaching out to area financial institutions, accounting firms, or investment advisors to see if they have anyone who may consider serving on the board. Another great source may be reaching out to the various professional networking organizations in the Black Hills region such as the Young Professionals Group, Leadership Rapid City, or BNI International.

Current volunteers of an organization may also make good board members.  They know the organization and are already loyal to the cause.  Not all volunteers want to serve on a board, but others may cherish the opportunity of serving as a board member.  Board members who have volunteer experience with an organization are extremely valuable. They know how the organization runs and can bring a realistic viewpoint to board meetings where other members may have only a rough idea of how things work.

Some nonprofits may have a governance committee, or a group of management and board members who are responsible for identifying and evaluating potential board members.  The governance committee will monitor board members meeting term limits, be watchful for prospective board members and recruit new members.  This group can also be responsible for properly training new board members.

The recruitment process requires both screening a candidate and creating interest of a potential future board member until he or she is ready to accept an invitation to become an ambassador and advocate for the nonprofit. The board of directors serve as governance of a nonprofit organization and ultimately are responsible for the oversight of operations. Being a board member is a very serious commitment and one which should be carefully considered.

For additional information, please contact any of Ketel Thorstenson’s nonprofit experts.


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September 5, 20180

Brady GabelIn our previous “Audit Preparation Series: How to Prepare for Your Audit” article, we discussed the necessary steps to prepare for your audit and what happens during the audit fieldwork. Now that audit fieldwork is over, we move into the stages of wrapping up the audit process and issuing final reports.  This article will focus on what to expect during this stage.

At the end of your audit week, I highly recommend that you sit down with your auditor and have a discussion on fieldwork. How did fieldwork go? Is there anything we (both the auditor and auditee) can improve on to make the process better? Were there any significant issues encountered? How many items are still pending? When do pending items need to be received by the auditor in order to meet deadlines? Other items to follow up on are any confirmations yet to be received (i.e. debt confirmations, accounts receivable confirmations, attorney letters, etc.) If these items are still outstanding, final reports cannot be issued by the auditor.

Once all pending items are available, a timeline of when the draft can be expected should be discussed. It is ideal to work backwards when it comes to deadlines. You should allow yourself an adequate amount of time to review the final reports, and, if need be, schedule any necessary presentations (i.e. board of director meeting). For entities subject to the South Dakota Department of Legislative Audit’s (DLA) review of final reports, you will also need to factor in the time DLA will need to review and approve of any reports. During the review process, items may be encountered or requested to be changed on the final reports. Again, additional time will be needed for the auditor to make these changes. In summary, plan ahead and for adequate time between the end of the audit fieldwork, and the issuance of final reports.

Before a draft of the final reports are received, it is wise to discuss any new or different items which might be presented on the financial statements. It would also be wise to review new disclosure requirements. While in many cases an auditor prepares the financial statements, the financial statements in and of themselves are actually the responsibility of the auditee. If you do not have an understanding of an item presented, it is critical to ask your auditors in order to receive proper education on such items.

Along with the financial statements, additional reports can be issued in conjunction with the audit. The first report is a management letter. Management letters represent communication from auditors to key users of the financials (management, board of directors, etc.) regarding internal control deficiencies encountered in the audit along with the severity of the finding (a material weakness or significant deficiency). Management letters are not issued to outside users and are only for internal use. Organizations who have these letters issued have the option of including a response or corrective action plan, but these items are not included as the letters are simply to inform key individuals of internal control deficiencies found, the cause and effect of the deficiencies and recommendations from the auditors on how to correct the deficiencies.

If you are a governmental organization or subject to a single audit requirement, a form of the management letter discussed above is included in the financial statements and titled as the “Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards”. You might hear this referred to as the GAO report. Organizations subject to a single audit will also have an additional letter included in the financial statements titled as the “Independent Auditor’s Report on Compliance for Each Major Program and on Internal Control Over  Compliance Required by the Uniform Guidance”. You might hear this referred to as the Uniform Guidance report. The Uniform Guidance report addresses internal control deficiencies and compliance issues encountered specifically in regards to the single audit and major programs being audited.  There are a few key points to the GAO letter and the Uniform Guidance report. 1.) These letters are included in the financial statements. 2.) These letters require a response and corrective action plan, written by the organization being audited, to be included in the audit. 3.) These letters lists the party responsible for the findings occurring (this could be the name of a specific member of management). Careful thought must go into addressing these items and written responses will need to be given to the auditor in order for the financial statements to be updated.

If audit reports are subject to board of director meeting approval, also strive to have drafts of audit reports issued to board members in advance so they can ask questions during that meeting. If a management letter, GAO letter, or Uniform Guidance letter is issued in conjunction with your audit, it is also wise for the board of directors to discuss the findings in detail and review any required responses and corrective action plans for approval.

Once the final drafts have been approved, there are a few final requirements before reports can be issued.

  • Your auditor will need to go through inquiries regarding any significant changes occurring after year end. If attorney letters were needed to be sent, follow up will need to take place between the auditor and your attorney, to ensure there are no changes. If applicable, the latest board of director minutes will need to be provided to your auditor. If anything significant is encountered, these items may need to be addressed in further audit procedures or as additional disclosures in the final reports.
  • A signed and dated representation letter will need to be provided to your auditor.

Of the two aforementioned items, the most confusion is generally on the representation letter. A representation letter is a letter drafted from you to your auditor verifying certain steps have been taken in order for us to have arrived at our audit conclusion. While this letter is technically from you to the auditors, we typically provide a draft of this to you for convenience purposes. Representations listed in this letter range from having provided all necessary information, certifying there were no undisclosed instances of fraud or noncompliance with laws and regulations, and that to the best of your knowledge, there were no significant items not properly accounted for. Along with the audit, is also a copy of the final audited trial balance, list of audit adjustments, list of unadjusted items, and any significant non-audit schedules we prepared for you, such as depreciation schedules. This letter should be carefully reviewed by you and must be both signed and dated by key individuals overseeing the audit in order for final reports to be issued.

After the final representation letter is received from the auditor, final reports can be issued. One important item to note on this: once your auditor has received the signed representation letter, we are under the assumption that no changes or additional adjustments are necessary. Before you sign and return the representation letter, be absolutely positive you are comfortable with the draft copies of reports issued to you. Once an auditor has issued a final report, we can not simply go back. Reissuance of an audit report is not as simple as changing the date and giving you new copies. Our professional standards dictate certain processes be taken in order to ensure previously issued reports are returned and end users are notified as to the reissuance of those reports. New drafts will need to be issued and the approval process, including the signed representation letter, will need to be performed again.

Final signed reports indicate the end of your audit. For organizations receiving federal grant dollars subject to a single audit, please keep in mind the submission of the data collection form to the federal clearinghouse are 30 days after the reports are received.

This is the last article in our audit preparation series. Hopefully you now have a better understanding of what an audit is, what assurance level you are obtaining in your audit, how to prepare for an audit and how to finish the process and receive your final end product- the final reports. We hope you have enjoyed these articles. Please contact our audit team to answer any questions you may have in the audit process.


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June 7, 20180

Brady GabelAn audit can be time consuming no matter the size and type of your organization. There are steps you can take to ready your organization for an audit and help to eliminate some of the time spent during the audit gathering information. The first step is to understand the components of an audit. There are three stages to every audit: planning, fieldwork, and completion.

Planning

The planning stage of an audit is best described as the “getting to know you” stage. The auditor will ask general questions about your organization, changes that occurred during the year, control procedures, and request the trial balance and general ledger. Information is also usually requested during this period using an items request checklist. This list is a roadmap to the audit experience and helps set up expectations for the type of information that will be required during fieldwork. As you are recording year end adjustments, keep the paperwork that you needed to determine what the entries were, the auditors will need this same type of information. Walking through each account in the trial balance and making the proper adjustments will assure less adjustments are proposed during the audit. It is advantageous to send this information as it is gathered or have it ready for the auditors on the first day of fieldwork, which will in turn decrease the amount of information requests that occur during the fieldwork stage.

Throughout the planning stage, the auditor assesses risk by transaction classes (i.e. cash, debt, revenue, etc.) and designs the audit approach based on those risks. Based on the risks determined, the auditor determines what type of audit procedures to implement for this specific audit. There are six categories of procedures the auditor can use to audit the transaction classes: 1) inspection, 2) observation, 3) inquiry, 4) confirmation, 5) re-performance, and 6) analytical procedures. Which procedures are used is determined at the end of the planning process. The auditors use a combination of these procedures to “fill their bucket”. This terminology is used as a way to explain the overall audit process. To complete an audit, the auditor must make sure they are gaining sufficient audit evidence in the most effective way possible. For example, with receivables it is common for confirmations to be sent out to help substantiate the balance of receivables and there is usually an inspection of documentation to determine that each receivable is properly recorded. Is this enough? It depends on if these two procedures provide reasonable assurance the financial statements are not misstated. This decision is based on the auditor’s judgment and every transaction class is different just as every organization is different. The types of procedures tested may also be based on control testing or substantive testing. Control testing tests the controls the organization has in place for that transaction class to determine if control procedures are implemented properly and work. Substantive testing tests the balances of the transaction class to determine if they are recorded properly. Either type of testing may be used alone or together to gather appropriate audit evidence.

Fieldwork

This stage is where the gathering of information by the Organization is crucial. When the information requested is ready for the auditor at the beginning of fieldwork, interruptions to your staff are less frequent. Take time to ensure that all subsidiary ledgers agree to the trial balance and questions about differences should generally be less time consuming. The fieldwork stage is when the auditors are “filling their bucket” and they should have access to finance staff. If staff will be unavailable during the week, let the auditors know up front so they may schedule any questions or information requests accordingly. For example, if the accounts payable clerk has vacation planned later in the week, the auditors can shift their focus to ensure they are able to work through the accounts payable balances first.

Completion

Reaching this stage of the audit process signals that your audit is almost complete. A bulk of the work by the auditors is internal at this point. Once fieldwork is completed and all evidence has been gathered, the work goes through a rigorous review process. On most files, this entails a manager review, a partner review, and a concurring partner review. The concurring partner review is essential as a cold review as the partner did not have any other role during the audit of the Organization. There may be follow up questions from members of the audit team during this phase of the audit, but they should be limited in number. Once the reviews are completed, the draft financials are delivered. The draft financials should be reviewed and approved by the auditee and, at this point, if there are any questions regarding the financial statements or any findings that are reported, please ask them. A representation letter will be delivered to the auditee; this letter should be reviewed, signed, and returned to the auditor. This letter includes representations from the auditee as to the fairness and accuracy of the information provided to them during the audit.

Once the final report copies are delivered, the audit process is complete. However, the relationship with your auditors does not have to cease and are available year round for any questions you may have on accounting standards, internal controls, etc. If you have any questions, please do not hesitate to contact us, we are happy to assist you.


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