Audit Plan for a charity

Charities are not really any different – they just don’t have trading or manufacturing activities like most organisations

However, our charity does seem to be in the market for selling goods and services as well as holiday lettings

In questions like this, there is invariably a risk in each of the various points “following discussions with management and a review of board minutes”

As I read through the question, matters that immediately struck me as potential inclusions in a risk answer were:

– sale of goods $9.7 compares with payments to suppliers of $17.2 … this can’t go on!

– dissatisfaction with external auditors because they recommend the implementation of a VERY BASIC internal control – that’s not (in my mind) any sort of justification for the board of trustees to be dissatisfied. In fact, it’s more a reflection of the trustees incompetence than it is a criticism of the auditors’ professionalism

– the charity has received a $3 bequest from a single individual source … this is $3 out of a total of $12.1 legacies. If this level is not continued into the future, this year’s deficit of $1.3 rises to $3.3 and casts grave doubts on the ability of the charity to continue

– the claim by the nephew may have some merit despite the trustees’ belief that it is a weak claim. The credibility and competence of the trustees is already questionable (see earlier point) so their opinion is unlikely to be solid enough for the auditor to accept at face value … particularly since the trustees have not resorted to taking legal advice

– it’s unlikely that a cash flow forecast is going to save the charity from short term disaster! Besides, just how much credence can be placed on a set of forecast figures where the two major sources of income representing greater than 69% of the total annual income both lie outside the control of the charity (legacies $12.1 and government grants $15.6)

– why a cash flow for only 9 months – what weird thinking lies behind that strange choice of forecast period

– inexperience of the trustees in a new market and the possibility that not all expenses were forecast. Was there any sort of business plan behind the move? How heavily is the charity committed? Is it just one or two properties as a pilot scheme or is there much heavier involvement? Was any research carried out into the rental market and how do the figures compare with the business plan / forecast?

– clearly the venture is suffering with “very disappointing performance”

– difficult to be optimistic about the doubling of turnover in the next 10 years based on the risks so far identified

– interesting fraud committed by the stores manager! And exceptionally disappointing given “that the employees of the Trust were all of the highest calibre and inherently trustworthy”

Just how did this store manager get away with at least $150,000 – inventory? cash? false accounting?

Charlie does one day per week checking on the high-risk areas of inventory and cash … er … what exactly has he been doing?

– risk of fraud through false accounting could have been minimised by segregation of duties of employees – but that was an idea that was roundly rejected

– and what has the small in-house finance team been doing with their core accounting? How come they didn’t identify the fraud in its early days?

– there could be a risk that the government grants are being misapplied. At the moment, of the $15.6 received, only $4.5 is going out to community groups That’s $11.1 received from the government and $12.1 received from legacies being used to pay $16.1 staff costs, $.15 for the fraudulent manager and $7.5 losses in the activities of selling and supplying goods and services

The risk for the auditor is that their name and reputation will be inevitably tarnished as a result of their being associated with this charity – it’s a headline-hitting disaster waiting to happen

In future please do not ask me to do your home-work. I’ve done it this time because your tutor has a wicked sense of humour!

OK?