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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



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



I. What is a successful audit?



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



II. Auditor vs. Auditee Responsibilities

Have a clear understanding of:

1. Your auditor’s responsibilities

2. Your responsibilities



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.



Auditor’s Responsibilities (cont.)

Examine on a TEST basis evidence supporting the amounts and disclosures in the financial statements.




Not to prepare schedules




Not to perform bookkeeping functions




Not to catch fraud, waste, abuse, etc.



Your Responsibilities(Management)

Establish and maintain internal controls

Select and apply accounting principles



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



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)



III. Board of Directors vs. Investment Committee



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



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



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



Accountability

- Webster’s Dictionary

“The state of being accountable, subject to the obligation to report,

explain or justify something; responsible;

answerable”



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



V. What do auditors look for?

Why won’t they just leave us alone?



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.)



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.)



Things to Consider

Segregation of duties

Small organization with limited resources

Mitigating circumstances (checks and balances)



Things to Consider (cont.)

Adequate resources

Inexperienced/unqualified staff

Accounting and industry training programs and seminars



VI.Common Management Letter Comments

Incomplete accounting records– No (or infrequent) reconciliation of– investments to general ledger– Unrecorded transactions – Unsupported account balances



Common Management Letter Comments (cont.)

Lack of an Official Investment Policy– Outdated– Too conservative/too aggressive– Management not adhering to policy



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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