Auditors are important professional advisors to nonprofits. Good auditors will help you keep your financial house in order, identify issues that need the attention of board members and management, and assist with any necessary corrective action plans. Moreover, a “clean” audit from a respected CPA firm provides a measure of credibility to the organization.
There is one school of thought that holds that it is good practice to change auditors every few years, to have the benefit of a new perspective on the organization’s financial operations. Others believe that a long-term audit relationship translates into better understanding of the whole picture and therefore more value to the nonprofit client. Regardless of your position on this issue, if you’re not getting good service, you should be looking for a new auditor. But can you recognize when danger signs exist in your relationship? The following list of indicators may help you to identify potential problems.
Not Seeing the Big Picture: Performing an effective audit means more than obtaining the correct schedules and reports; it includes assessing crucial concerns in the external environment. If your auditors are unaware of key industry trends, your regulatory environment, and where your organization is heading, then they are unprepared to do the comprehensive job you have a right to expect. Auditors should be asking themselves and you, “What’s out there that can affect how my client is—or should be—doing business?”
Acting Like a Know-It-All: Some auditors may not listen to the specifics of an organization’s concerns or apply slapdash recommendations that worked for others. That is irresponsible and can cause serious problems. Providing professional services means that an auditor should “serve” each client with expertise specific to its needs. Displaying general competence and knowledge isn’t enough.
Issuing Late Opinions and Recommendations: Many organizations are guilty of holding up their own audit work by closing the books late or not preparing information as requested. But if the organization has fulfilled its part, it has a right to expect an opinion on its audited or reviewed financials on time. While the audit timeframe may differ based on the size and complexity of the organization, as well as its regulatory and other deadlines, on principle the auditor should get the job done when promised.
Not Respecting the Organizational Culture: Auditors should be sensitive to their client’s work environment. It’s important for auditors to recognize and appreciate the organization’s norms: how staff interact with one another, their preferred method of corresponding and communicating, their workday schedule and their workspaces. Following the staff’s lead in workplace dynamics shows respect for the organization.
Not Staying in Contact: Auditors who don’t call you until a week or two before the start of fieldwork are in effect telling you that your organization is not a priority. You should expect a better level of communication. Auditors should demonstrate to you that they have properly planned, regardless of your size and the size of your audit fees. They should make themselves available to answer questions about changes in your agency and should make phone contact themselves between audits (if they do not perform an interim audit or review). This is necessary to identify any changes that could affect the year-end audit. Appropriate communication minimizes surprises—leading to better timeliness and an easier time keeping abreast of the big picture.
Failing to Offer or Recommend Additional Services: An auditor should always consider services and products that can improve controls and business processes. With the rate of technological and other changes in the environment, if your auditors never or seldom offer this kind of feedback, they may just not be paying attention.
Not Following up on Status of Prior Year Issues: You should expect the auditor to inquire about the status of prior year Management Letter Comments (MLCs). Again, auditors must demonstrate to you that your issues are of concern to them. It’s not enough to identify control weaknesses or material misstatements. It is now fairly standard practice for the auditor to work with management and the board to at least develop a plan to address concerns identified in management letters.
Not Staying Current on Auditing Pronouncements: Auditors cannot perform effective audits if they are not up to date on accounting bulletins and auditing changes. The organization should expect to rely on the auditor for expert level guidance. Auditors not current on accounting standards are less likely to design and perform audits that minimize the organization’s long-term financial risks.
Politicking Too Much: In general, auditors must use professional skepticism, which means that they should maintain an arm’s length relationship with staff and board. Although the organization pays audit fees, and the auditor has a contractual relationship with the staff or board of the organization, the auditor is ultimately responsible to the organization’s constituents, including funders, for performing a high quality audit. They should use due care in their judgments. An auditor who frequently dismisses known issues, waives unexplainable differences, or otherwise is overly lenient, is contributing to a serious breakdown in your accountability mechanisms. An auditor’s relationship with the staff or board should never compromise his or her duty to the public. As for the institution itself, the short run gain of appearing to have a clean audit is not worth the long-term risk of having issues blow up and place at risk its funding base and, more importantly, the trust of the community.
Lacking Diversity: Auditors are professional vendors. They provide a service that is, in nonprofits, paid by private and public funds that are received on behalf of constituents. The audit team, therefore, ought to reflect the diversity of the clients it serves.
How does your audit firm stack up? You can use this article as an evaluation tool. Pull it out occasionally and consider the performance of your auditor. Communicate concerns. If they are not willing to make changes, then it might be time to look for a new firm.
Brenda Rodriguez is an associate at PricewaterhouseCoopers LLP (PwC) in the assurance business advisory services practice. Prior to joining PwC, Brenda worked at a community based organization in administration. She volunteers in various organizations and currently serves on the board of directors of the National Association of Black Accountants, Boston Metropolitan Chapter.