The World Health Organization declared COVID-19 a global pandemic on March 15, 2020, and for the past year, organizations of all kinds have gone through tremendous change and disruption. However, one group of organizations has been impacted in a particularly strong way: nonprofits.

Among other reasons, the requirement to conduct audits for non-profits has presented a challenge. From the elevated potential for fraud risk to the practical difficulties of a remote audit, auditors need to be flexible and diligent to accomplish their work successfully.

One of the challenges faced by many in the sector is the seemingly simple question: Do we conduct the audit now or do we wait? Take, for example, an organization that requires evidence of services rendered or production quotas to meet the terms of agreements for funding from foundations. If that organization was performing well in 2019, went into 2020 with high expectations, and then the pandemic hit, how should losses or promised revenue be recognized?

Emphasize Clear Communication

Clear communication between all audit committees, boards, management, and other relevant parties is essential for a successful audit, especially if the audit is being conducted remotely. Good communication is, of course, always an essential component of an accurate audit, but additional complications make it all the more important.

Now, as nonprofits are facing a slew of challenges, it’s important for auditors to recognize this fact. They must listen as much as they ask questions or make demands. This may require boards to meet more often or for audit participants to lean in and put in more work to understand each participant’s role and responsibilities.

Running a Successful Remote Audit

Whether the audit is being conducted either partially or fully remotely, there are new risks and challenges that weren’t a problem before. Communication is inherently more difficult, so participants need to put a special emphasis on being accessible whenever questions need to be answered. Working together to align schedules and ensuring everyone is familiar with a set of communication tools is a good first step.

Tools like Zoom or Microsoft Teams allow for screen sharing while secure, cloud-based portals can be used to share documents. These technologies are not free, but the time saved can dramatically outweigh the cost.

Assessing Risk

As organizations change their operations to accommodate the pandemic, alter the way they raise money, or modify the services they provide, there are many possible risks.

An example of fraud risk could include the temptation to alter the statement of financial position. Certain foundations, for example, prohibit the distribution of funds to nonprofits with deficits in net assets. Predictably, the pandemic has caused more organizations to fall into this category. Though many foundations have relaxed their rules in this respect, others have not, and inflating an organization’s financial position to continue receiving funds could be tempting.

Leveraging tools like “whole ledger analytics” allows auditing firms to analyze their activity over the course of an entire year and automate the risk identification process. As risks are identified, audit scope can be tailored to the identified risks.

 

The Tip of the Iceberg

This article has only briefly touched on the potential risks and challenges facing auditors and non-profits. Other considerations further complicate the process, such as how economic relief payments through the Coronavirus Aid, Relief, and Economic Security (CARES) Act should be recognized.

Rubino & Company has a reputation for streamlining the audit process and delivering excellent service to non-profits, so they can focus on the vital services they provide. Connect with us, so we can discuss the challenges you may be facing and find a solution.

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