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Prepare for a Field Audit.doc.doc
Prepare for a Field Audit.doc.doc
Prepare for a Field Audit.doc.doc
Prepare for a Field Audit.doc.doc
Prepare for a Field Audit.doc.doc
Prepare for a Field Audit.doc.doc
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Prepare for a Field Audit.doc.doc

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  • 1. FIELD AUDIT Back to List Field audits assist in evaluating adherence to mission objectives. Auditor(s) conduct their fieldwork through staff interviews, examination of sampled supporting receipt documentation, and third-party confirmations, to determine 1) Field compliance to donor or grant restrictions 2) Field compliance to Home Office-approved project parameters 3) The accuracy of financial records based on generally accepted accounting principles and local laws 4) Overall Christian stewardship of mission resources The Home Office recommends that the field conduct an audit every two years. Here are some basic steps to coordinating an audit: Select the Auditor(s) Auditors vary in the type of professional contributions they make towards the audit. The auditor types also vary. Included below is a listing of auditor types with some of their more common advantages and disadvantages. Generally, the valuation system below rates auditing skills from Proficient (strongest) – Knowledgeable - Some Knowledge - Limited Knowledge (weakest). 1) Auditors from an local or regional accounting firm Advantages Proficient in local language, proficient in local tax and financial reporting regulations, auditors’ office and supporting resources are closer to field office than other auditor types, and auditing fees may be inexpensive Disadvantages Limited knowledge of the agency’s operational structure, limited knowledge on Home Office reporting requirements, limited knowledge of North American financial reporting standards, and the integrity of local accounting firms vary 2) Auditors from an international accounting firm Advantages Proficient in local language, proficient in local tax and financial reporting regulations, proficient in North American reporting standards, and a stronger reputation of integrity Disadvantages Limited knowledge of the agency’s operational structure, limited knowledge of Home Office reporting requirements, and auditing fees may be very expensive
  • 2. 3) In-field qualified volunteer from another North American mission agency Advantages Knowledgeable in local language, knowledgeable in local tax and financial reporting regulations, audit fees are inexpensive, and some knowledge of North American reporting standards Disadvantages Limited knowledge of the agency’s operational structure, limited knowledge of Home Office reporting requirements, and sometimes a limited commitment to the audit project because of responsibilities to own mission agency 4) North American qualified volunteer Advantages Knowledgeable in North American reporting standards, some knowledge in the agency’s operational structure, inexpensive audit cost, and if the North American qualified volunteer is a donor, there is ownership and greater enthusiasm in mission-supported projects. The field could also benefit from that volunteer’s business expertise Disadvantages Limited knowledge in local language, limited knowledge in local tax and financial reporting regulations, and limited knowledge in Home Office reporting requirements. However, this final limitation can be minimized by providing the volunteer with a listing of significant field accounting policies and an explanation of the type of engagement – see Qualified Engagement Overview document in the Appendix. 5) Home Office Auditor Advantages Proficient in North American reporting standards, proficient in the agency’s operational structure, proficient in Home Office reporting requirements, and also an opportunity for the field and the Home Office to evaluate effectiveness of their working relationship. The evaluation could then lead to providing value-added services Disadvantages Limited knowledge in the local language, limited knowledge in local tax and financial reporting regulations, lack of independence (for both the auditor and field staff work for the same organization), and limited opportunity for Home Office financial staff to visit the field Auditor Selection Concluding Comments The listings above, of course, are generalizations. Although they serve as a guideline, the field must still closely evaluate an auditor’s individual qualifications. Secondly, the strength of audits may lie in diversification. A field should alternate auditor types in order to effectively test, over a period of time, all areas of field operations (compliance to local tax and financial reporting regulations, compliance to North American reporting standards, consulting an auditor’s business expertise, etc…). Thirdly, a field must 2
  • 3. select auditors based on funding stipulations. External grants may require certified auditors or auditors independent from the mission. Such requirements may exclude contracting North American volunteers or Home Office financial staff. Top of document Prepare for the audit field work 1) Prepare an internal control questionnaire 2) Make arrangements with auditor(s) to a) Determine the scope of the audit 1. The fiscal years tested 2. The kind of testing performed b) Determine the timing of the field audit. Field staff must make themselves available to answer questions and supply additional documentation. c) Get a listing of documentation required by the auditor. Please note that this listing will often not be the complete listing. Questions and information requests evolve during the course of field-testing. Some of the most common required documentation are 1. Previous years’ audit reports 2. A listing of employees and their positions in the mission 3. Copies of employee contracts 4. Employee loan agreements (if any) 5. A listing of partner organizations 6. Copies of Grant Agreements with Partner Organizations 7. Chart of accounts listing 8. Monthly, Quarterly, and Year-end Financial reports with related budget information 9. Bank Statements for all bank accounts and any cancelled field checks 10. Bank Reconciliations 11. Copy of the petty cash journal 12. A listing of transfers from the Home Office to the field 13. A listing of other transfers to the field 14. An asset listing with supporting purchase and price quote documentation 15. Copies of insurance policies 16. Copies of vehicle titles 17. Copies of rental agreements for office and staff housing 18. Schedule of rental payments for office and staff housing 19. Disbursement documentation such as paid invoices, employee expense reports, and receipts 20. Country registration documents 21. Employee manual for staff paid from the field 22. Employee manual for staff paid from North America 23. Payroll records for staff paid from the field 24. Documentation for mission-paid children education assistance programs such as a listing of tuition payments and information describing the philosophy and nature of the schools d) If auditors are not fluent in the language in which a substantial amount of the documentation is written, the field may need to contract the services of an interpreter. Please consult the auditor regarding this issue. Top of document 3
  • 4. Complete follow-up work to the field audit After the audit fieldwork has been completed, the auditor(s) will begin their work on drafting an audit report. A field should be allowed to review an audit report draft and give its input before the audit report is finalized. Such participation minimizes the risk of documenting incorrect statements of fact and it enhances field understanding of audit recommendations. Regardless of the degree of participation the field has with the formulation of a finalized audit report, the auditor(s) and field staff may disagree on certain audit recommendations. If disagreements do arise, the field should 1) Document its points of disagreement with the particular audit recommendation. 2) Communicate the disagreement to the Home Office Financial Services Department for its consideration. 3) Comply with the Home Office Financial Services recommendation(s). Top of document Retain Audit Report and Audit Work Papers Once an audit report is finalized, the field must request copies of the audit report and audit work papers. One set of these documents must be retained in a secured location on the field. A second set of these documents should be forwarded to the Home Office Financial Services Department. The components of the audit report include 1) An audit letter, dated on the last day of field testing, that outlines a. The scope of the audit b. Any scope limitations c. An overall opinion of the quality of financial documentation and accuracy of financial records 2) A list of audit recommendations based on the results of the audit program The components of audit work papers include 1) An audit program listing the conceptual steps taken during the course of the audit 2) Copies of key supporting documentation 3) Auditor-prepared schedules and calculations that support the conclusions made on the audit program Samples of an audit letter and audit program have been included in the appendix of this manual. Top of document Draft a performance evaluation of the auditor(s) 4
  • 5. Good auditors evaluate both the accuracy of financial records and the effectiveness of internal controls through staff interviews, the examination of sampled supporting documentation, and third party confirmations. As noted earlier, auditors vary in the type of professional contributions they make towards the audit. After the audit report has been finalized and the audit work papers have been sufficiently reviewed, field staff should draft an auditor evaluation. This evaluation should consider, within the context of audit scope, the quality of field-testing and the manner in which the audit was conducted. (A sample copy of an auditor evaluation has been enclosed in the appendix of this manual). A completed evaluation should be forwarded to the Home Office Financial Services Department. Top of document 5
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