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Effective Management of Nonprofit Investments: The Auditor’s Perspective
September 18, 2012
Trevor Williams, CPASenior Audit Manager
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 2
Nearly 20 years of experience with audit functions, contractual compliance rules, regulations and policies
Supervises the overall planning and administration of audit, review and compilation engagements
Nonprofit Involvement:– Board member, MD/DC/VA Chapter of the Lupus Foundation of
America– Board member, Mentors, Inc.
Trevor W. Williams, CPASenior Audit Manager, Gelman, Rosenberg & Freedman CPAs
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 3
Table of Contents
I. What is a successful audit?
II. Auditor responsibilities vs. auditee responsibilities
III. Board of Directors vs. Investment Committee
IV. Managing investments
V. What do auditors look for?
VI. Common management letter comments
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 4
I. What is a successful audit?
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 5
Organization is key
Advance preparation
Pull, scan, or copy information requested by the auditor
Maintain a list (or backup copy) of information provided
Make sure supporting documentation is complete and accurate
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 6
II. Auditor vs. Auditee Responsibilities
Have a clear understanding of:
1. Your auditor’s responsibilities
2. Your responsibilities
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 7
Auditor’s Responsibilities
Gather information about your organization to provide reasonable (not absolute) assurance that your financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles.
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 8
Auditor’s Responsibilities (cont.)
Examine on a TEST basis evidence supporting the amounts and disclosures in the financial statements.
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 9
Auditor’s Responsibilities (cont.)
Not to prepare schedules
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 10
Auditor’s Responsibilities (cont.)
Not to perform bookkeeping functions
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 11
Auditor’s Responsibilities (cont.)
Not to catch fraud, waste, abuse, etc.
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 12
Your Responsibilities(Management)
Establish and maintain internal controls
Select and apply accounting principles
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 13
Your Responsibilities(Management)
Establish an accounting and financial reporting process
Ensure fair presentation of the financial statements in conformity with U.S. generally accepted accounting principles
Management decisions
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 14
Your Responsibilities (Governing Body)
Designate individuals with suitable skill, knowledge, or experience to oversee the programmatic, financial and tax needs of the organization
Establish and maintain internal controls
Monitor financial and programmatic performance (financial reporting)
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 15
III. Board of Directors vs. Investment Committee
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 16
Board of Directors
Trustees of the organization’s assets; stewards of public trust– Objective, honest and efficient – Must exercise good decision-making
without placing organization at unnecessary risk
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 17
Investment Committee
Smaller sub-group within the larger framework of the board that assists in fulfilling the board’s oversight responsibility for the investment assets of the organization
The committee is responsible for formulating the overall investment policies and establishing investment
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 18
Finance/Investment Committee
The committee monitors the management of the portfolio for compliance with the investment policies and guidelines and for meeting performance objectives over time
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 19
Accountability
- Webster’s Dictionary
“The state of being accountable, subject to the obligation to report,
explain or justify something; responsible;
answerable”
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 20
IV. Ingredients of Managing Investments
Investment policy
Internal controls and procedures
Adequate approvals of investment decisions
Sufficient knowledge of makeup of investments
Monthly statements
Transaction statements
Annual statements
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 21
V. What do auditors look for?
Why won’t they just leave us alone?
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 22
Current or updated investment policy
Evidence that the Investment Committee is adhering to its charter/roles and responsibilities
Evidence that the organization’s investments are in accordance with the investment policy
Evidence internal controls and procedures exist and are consistently applied
What do auditors look for? (cont.)
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 23
An understanding about types of investments permitted by law, agreements with donors, endowments, etc.
Whether all aspects of investments have been calculated correctly and properly recorded
If the organization’s investments are managed by a broker/investment advisor, whether that broker/investment advisor has had a service organizations report (aka SSAE 16 – formerly SAS 70)
What do auditors look for? (cont.)
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 24
Things to Consider
Segregation of duties
Small organization with limited resources
Mitigating circumstances (checks and balances)
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 25
Things to Consider (cont.)
Adequate resources
Inexperienced/unqualified staff
Accounting and industry training programs and seminars
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 26
VI.Common Management Letter Comments
Incomplete accounting records– No (or infrequent) reconciliation of– investments to general ledger– Unrecorded transactions – Unsupported account balances
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 27
Common Management Letter Comments (cont.)
Lack of an Official Investment Policy– Outdated– Too conservative/too aggressive– Management not adhering to policy
Effective Management of Nonprofit Investments: An Auditor’s Perspective
Trevor W. Williams, CPA • [email protected] 28
Common Management Letter Comments (cont.)
Donor’s intentions not honored (restricted contributions)
Organizations that use a broker/investment advisor should obtain SSAE 16 report and designate someone within the organization to read it
Trevor W. Williams, CPAEmail: [email protected] Telephone: (301) 951 – 9090Website: www.grfcpa.comVisit:
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