AUDIT OF NON PROFIT ORGANISATIONS

AUDIT OF NON PROFIT ORGANISATIONS (UNITED KINGDOM)



Introduction

No margin, no mission. Based on the popularity of that phrase in recent years, especially in the health care industry, a strong connection between accounting and nonprofit organizations is acknowledged. It is a connection that nonprofit leaders need to recognize and understand. A nonprofit organization does not distribute its surplus funds (margin) to owners or shareholders but instead uses them to help pursue its mission. In fact, a nonprofit organization does not have any owners or stockholders. Therefore, one might conclude that accounting becomes a secondary concern of the nonprofit leader compared to carrying out the mission. However, nonprofit leaders need to have an understanding of accounting and how it impacts the organization's ability to pursue its mission. Nonprofit leaders don't have to be financial experts (although there should be a knowledgeable employee or board member somewhere in the organization), but they do need to know enough to understand the current financial picture, identify problems, and take corrective action. Understanding financial information is vital to managing a successful nonprofit organization and helps nonprofit organizations fulfill their responsibility.

Small nonprofit organizations often do not have the resources to hire a full-time employee with accounting expertise. These organizations must find cost-effective ways to fulfill their fiscal responsibilities. Some nonprofit organizations hire an outside party, such as an accounting firm or bookkeeper, on a part-time basis to handle the accounting. Others rely on a board member to provide high-level financial expertise. The important thing is that the organization makes sure that a knowledgeable person takes financial responsibility, and there is proper oversight of this function by its leader.

Board Committee Structures

Board committees facilitate the work of the board. Committee structures vary from nonprofit to nonprofit but typically include standing committees and task forces. When designing a board committee structure, care should be taken to ensure that (a) the board has a sufficient number of members and the necessary expertise to carry out the committees' respective assignments, (b) the organization has the capacity to support the committees' work, and (c) procedures are put in place to make sure that board committee work advances the work of the full board rather than usurps its responsibilities. (Adams, 2002, Pg # 23-50)

Standing Committees

Standing committees are a permanent part of the organization's governance structure. They are specified in the organization's bylaws, which also outline their major responsibilities. Common standing committees include governance, executive, finance, audit, and fundraising. Other standing committees may include program, personnel, marketing, and community relations. When deciding which standing committees should be part of a nonprofit's governance structure, consideration should be given to the type, extent, and duration of the board's anticipated involvement; that is, policy focused, extensive, and ongoing versus supportive, limited, and one time or episodic. In addition, creating a committee structure that parallels staff responsibilities should be avoided. (Adams, 2002, Pg # 23-50)

Governance

The governance committee or board development committee is considered by many to be the board's most important ...