Audits or Review of Accounts

2010 Article, updated November 2017   Definitions – Audits and Reviews According to the (former) New Zealand Institute of Chartered Accountants website in 2011, an audit is an engagement: where an independent expert, the auditor, provides an opinion on “a matter of accountability” (the subject matter), where the “matter of accountability” is the responsibility of someone else (usually the management of the entity, and which is designed to provide a high, but not absolute, level of assurance on the subject matter. In contrast, a review engagement is designed to give the reader of financial statements limited assurance on the information. It is an independent examination of information, It requires enquiry and analytical procedures to assess the information, The reviewer needs to have a level of knowledge of the organisation in order to be able to identify the events and transactions that may have a significant effect on the financial statements, A review provides a moderate level of assurance on the subject matter. Community auditing A generation or so ago most community organisations had their accounts audited. There used to be retired accountants, bank managers and trust officers around who would do this as a community service, usually rewarded with a bottle of whisky or a dozen beers. Those days are well-past, and there is an ever-diminishing number of accountancy firms prepared to do audits, especially on a pro bono basis. The cost of auditing is now a significant burden on community organisations. An experienced auditor of community organisations provided me with a snapshot of the problems involved in such audits – “sets of accounts (and rules) that are frankly hopeless,” and...

They Made a Mistake

2010 Article, updated November 2017   What societies and charitable trusts should do when mistakes are alleged or identified was discussed in We Made a Mistake.  This article looks at the reverse side of that discussion. Despite the best of intentions (but sometimes with malice aforethought) entity governance or management often falls short of what is legally required, but the institution may be unwilling or unable to address its alleged shortcomings – perhaps because the allegations are considered to be unjustified, seem insurmountable, arise from lack of organisational skills, or are consequent on personal greed. The skills and abilities of those who govern, manage, or benefit from community entities are very varied.  However, as I observed in the previous article, people involved in societies and charitable trusts can get very emotional and passionate about perceived problems.  Many such community entities attract some who are lonely, lack social skills, or are vulnerable in some way, and many of these people have plenty of time to devote to making life miserable for those who control an organisation. Much of what I said in the last article is relevant to the advice that needs to be given to those who allege mistakes by others in the governance or administration of a society or charitable trust.  The first priority is to ascertain the facts and how they may be proved and consider those facts having regard to the entity’s constitution and relevant legislation (particularly, if the entity is incorporated, the statute under which it is incorporated).  Once this is done there are a number of options to consider: Writing to the organisation’s governing body...

We made a mistake

2010 Article, updated November 2017   Errors in governance and administration are inevitable, and in voluntary organisations those governing and administering the entity often lack the skills to know what, who, how, and when to do things.  The previous article, Good Governance of a Society set out some of the problems, while other earlier articles have discussed the content and binding nature of constitutions and disciplinary issues. The fact that mistakes have (allegedly) been made may be raised with an organisation by those in governance or management, by an entity’s members (see the next article in this series), or by external agencies (for instance, by auditors, funders, the Registrar of Incorporated Societies or Charities Services). While there may be a natural tendency to deny that a mistake has been made or to become defensive when a mistake is alleged, such responses are seldom helpful and frequently aggravate the problem.  Further, the longer irregularities are left uncorrected the more likely it is that what may initially be a minor problem will escalate into a major crisis. When alleged mistakes are identified, a number of steps may be helpful: First, clarify the nature and details of alleged mistake or problem. Analyse the relevant documentation and events, identify those responsible for the possible mistake, and check whether there may be more to the allegation than may first appear (the issue may indicate systemic issues, the problems may be the tip of an iceberg of similar problems, the problems may involve either or both of poor governance and administrative procedures, there may be financial implications, there may be possible fraud involved, etc). Once the nature...