Discussion:NFP audit

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Discussion Forum Index --> Accounting Questions --> NFP audit

Jeff-Ohio (talk|edits) said:

21 August 2012
I recently went on a sales call for a NFP agency that helps underprivileged kids in the Cleveland area. During the interview, we discussed their needs, which was ‘someone’ to serve as the CFO for 12 hours a month preforming all financial duties (ie. approving invoices, budgeting, forecasting, etc.)

Today, I found out that I was hired for the role and subsequently asked ‘when can I start the internal audit’. After learning they really meant ‘external audit’, I realized that I probably cannot do both – serve as the CFO and perform the audit. I do have an auditing background, but not in the NFP/government arena. If I outsource the CFO role and just perform the audit, I need yellow book CPE correct? Is that all that I need?

Stuart (talk|edits) said:

22 August 2012
Why do they need an external audit?

If they are large enough to need a yellow book or program audit, and they do not have an in house finance person, I wouldn't think you would want any part of that.

Captcook (talk|edits) said:

22 August 2012
I need yellow book CPE correct?

I would suggest you need Yellow Book experience/knowledge to do these audits. I've done numerous audits of NPOs, but wouldn't touch an A-133 audit with a ten-foot pole because of the specialized knowledge required. That would be exclusive of the dynamic Stuart brings up, which would suggest to me that their books may not be auditable right now.

Additionally, I would be concerned with being an outside/contract person and approving payment of invoices. What kind of control environment do they have? This question is going to be asked (or should) by any external auditor. My limited knowledge of A-133 audits is that, I think, there are specific procedures relating to controls over the use of federal funds.

If it is at all possible, the organization may need one accounting cycle to establish their control environment and bring their books to auditable shape. I, too, am curious...why do they need an external audit? Have they had one in the past?

RobAZCPA (talk|edits) said:

23 August 2012
First off, nonprofit audits are not automatically Yellow Book audits. You'll know whether a yellow book report is required by looking at grant and contract agreements, usually from federal and state granting agencies who require the GAGAS report as a condition of accepting funds.

And yes, you need yellow book knowledge. An ethics requirement of CPAs who perform audits is that sufficient expertise must be obtained by the end of the audit. You can start by actually reading the yellow book, which details what auditors must and must not do to remain independent with regard to GAGAS standards. (Hint: you can't manage any financial duties.) You'll be reporting on internal controls, and if the client doesn't have any, you will end up proposing multiple adjusting entries to the one person who understands when you put accounting in plain english. You will also be reporting material weaknesses in internal controls. If by chance nobody understands accounting even in plain english, you won't be independent no matter what you do and you'll have to withdraw from the engagement.

You may find in certain instances that your yellow book audit becomes an A-133 audit also, due to windfall grants over the threshold amounts. Single audits can be learned with time, but the knowledge is specialized and doesn't really apply to any other area of accounting. Even with a nice software package, you'll want to budget 80 - 150 hours extra for your first time in order to learn the ins and outs of single audits. If you have just one, it's guaranteed to be peer reviewed in your next cycle.

Good luck.

Captcook (talk|edits) said:

23 August 2012
I guess I showed my ignorance of Yellow Book audits by assuming they were synonymous with A-133 audits. :)

EmpireCPA (talk|edits) said:

24 August 2012
I agree completely with Rob's comments regarding these audits. I would also advise you(and others in similar situations) to consult A-133 S___.210 regarding classification as vendors vs. recipients. Vendors may be paid with federal funds, but are not considered recipients for A-133 purposes. I have seen many situations where entities are providing services to state and local agencies and it is mistakenly believed that they are sub-recipients of federal funds.

RoyDaleOne (talk|edits) said:

28 August 2012
Community Action Agency

Head Start Program

Local Governmental Audits as in Counties

A long time ago, remember when we transited from grant audits to the single audit concept.

Warning, lots of unbilled time on most of the audit work.

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