Review vs. Audit
One of the most important reasons to maintain accurate financial records is obvious in that the association will be able to fulfill its budgetary obligations to its members. However, another reason is that the board of directors has a legal, fiduciary responsibility to maintain accurate records. Failure to do so can expose the association and, depending on the circumstances, the board of directors to costly litigation.
There are two basic types of financial oversight that must be contracted from outside sources-a review or an audit. A financial review consists of the auditor inquiring of association or management company personnel in order to verify the financial records of the association. Unless deemed necessary, the accountant is not required to obtain any independent corroboration to substantiate the personnel presentations. In contrast, as part of a certified audit, the auditor must obtain independent evidence to substantiate the assertions made by the association's employees and management.
In addition to a big difference in detail and thoroughness, a review can cost hundreds of dollars less than an audit. The board of directors makes the decision on what level of analysis will take place. Although many state laws governing associations and an association's governing documents may require an independent audit, some boards choose to save money and contract for a review. Should an association ever face a legal challenge of its financial records and management, the legal and financial exposure faced due to a review can prove much more costly in the end than an audit. A review does not require the auditor to formulate an opinion as to the records as is required under standard rules for an audit. An audit, therefore, provides the association legal protection regarding misstatements or errors in the financial records. A review does not provide that same level of legal protection.
The reason many governing documents require a certified, annual audit is to ensure accurate financial accounting and record keeping, and to protect the association from litigation. Boards of directors should adhere to this requirement and invest appropriate funds for an annual audits rather than trying to initially save money with a review.
Auditor DutiesAudit the books and financial records of the association annually.
Prepare and present written reports to the Board of Trustees in the months stipulated in the bylaws.
Prepare and present written reports for adoption by the association in the months stipulated in the bylaws.
Preparation for an AuditCollect all financial books, records and reports from the treasurer, including:
Current bylaws and standing rules;
Originals of checkbook register and canceled checks (including voided checks);
Originals of bank statements, bank book and deposit slips;
Cash receipts;
Authorizations for payment;
Itemized statements and receipts of bills paid;
Quarterly Treasurer's Reports;
Original treasurer's books/ledgers;
Annual Financial Report;
Copies of board, and association minutes, which would include an adopted budget, any amendments that were approved during the year, approval of expenditures, and ratification of payments;
Committee reports from chairmen (e.g., fundraising, membership, etc.);
Any other information requested by the auditor;
Copies of the most recently filed IRS Form 990 or 1120, if required.
If the Tracy Reunion Association has more than one account, audit each account separately.
Include bank name, bank address, type of account and the account number on each report.
Check off items in red ink as reviewed .Make sure additions/subtractions are correct in all instances.
Do not correct errors .Make notes as to how to correct errors and include in the report.
Start audit with records posted after the last audit. Check to see if the amount shown on the first bank statement (adjusted for outstanding checks and deposits) corresponds to the starting balance recorded in the checkbook register, ledger, and treasurer report, and the ending balance of the last audit.
Check to see that the ending balance of the last bank statement, checkbook register, ledger and treasurer report agree.
Confirm reconciliation of each month's bank statement to the checkbook register by someone other than the treasurer .Make sure every check is substantiated with an authorization for payment with reason for disbursement, appropriate payee and a receipt or bill. Note missing checks. (Void checks are filed.)
Check that all bank charges and interest earned are recorded in the checkbook register, ledger and treasurer reports.
Ensure that checks (see bylaws) and authorizations are signed by approved officers.
Reconcile each deposit slip with bank statement and checkbook entries. Ensure money was deposited promptly.
Ensure collection process is in place for returned checks that includes reimbursement of applicable bank charges. A returned check is treated as reverse income and reimbursed bank charges are treated as reverse expenses.
Reconcile checkbook register to the ledger. Check each month's ledger entries for error, and cross-check against checks issued and receipts posted. Cross-reference checkbook register with checks issued.
Verify that all income and expenditures are allocated into the same categories that constitute the approved budget.
Make certain that Tracy Reunion Association portions of the membership dues have been kept separate from other receipts and forwarded immediately.
Make certain that the number of memberships agrees with membership chairman's report, and verify that membership monies collected correspond to membership monies forwarded.
Ensure payment for insurance premiums.
Make certain the money collected for a specific purpose has been so disbursed.
Check association and executive board minutes to see if expenditures were authorized.
Check event reports to verify receipts and expenditures.
Check all cash receipt slips issued, and verify proper entry in ledger.
Compare figures on quarterly treasurer and annual financial reports against ledger for accuracy.
Ensure proper tax returns have been filed, if necessary (IRS 1120).
Prepare copies of written report, including recommendations, for president, secretary, financial officers. When called upon, read only the statement "The auditing committee has/I have examined the records of the treasurer of Tracy Reunion Association and find
them to be correct, or
them to be substantially correct with the following recommendations, or
more adequate accounting procedures are needed so that a more thorough audit report can be given, or
them to be incorrect.
Ask the responsible financial officer to correct errors after presenting the report.
After any errors have been corrected and all are satisfied that the financial accounts are correct, draw a double line across the ledger and checkbook register where the audit concludes and sign and date using red ink "Examined by (name) on (date)."
AUDIT REPORT CHECKLIST
Prepare written report.
Report should include bank name and address, type of account, account number, EIN, beginning balance (ending balance from last audit), a total of all expenditures, all deposits, outstanding checks, outstanding deposits, and an ending balance (Audit Report Form). Include a statement at the bottom of the report to be read upon presentation of the report, "The audit committee has/I have examined the records of the treasurer of Tracy Reunion Association and find - them to be correct, or - them to be substantially correct with the following recommendations, or - more adequate accounting procedures are needed so that a more thorough audit report can be given, or – them to be incorrect." Each member of the committee or the auditor should sign the report.
Attach any recommendations to the report. List errors in arithmetic or posting. List unpaid bills and payments authorized, but not paid.
Present the audit report with recommendations to the Board of Trustees, and attach the report to the minutes.
Present the audit report to the association and read the statement given on the report (from the form).
Formally adopt the audit report with a motion: "I move that the audit report be adopted" and record the action in the association minutes. Any Tracy Reunion Association member may make a motion to adopt the audit report.
Attach a signed copy of the audit report to the association minutes.
