In October 2011, the new Canada Not-for-Profit Corporations Act (CNCA) came into effect to govern not-for-profit corporations incorporated federally. In a nutshell, the Act was designed to ensure that organizations receiving public funds are sufficiently transparent and accountable for that income and its related spending.
Depending on the size of your organization, and your gross annual revenue, the Act may require that your finances be audited every year. (In some cases only a Review Engagement is required).
Grant funders, government agencies, board of directors, etc. can request a nonprofit audit or review, which is usually conducted by a Chartered Professional Accountant (CPA). The Government of Canada provides a more comprehensive overview of the legal requirements of not-for-profit organizations’ audited financial statements and reviews on its website.
When there is an audit committee, one of its main responsibilities is to choose an auditor who has the expertise and knowledge to perform an audit for their nonprofit. When there is no audit committee, the responsibility to find/recommend an auditor typically falls to the executive director and/or the Board of Directors.
Selecting the right auditor is an important decision for Canadian nonprofits because it can have a significant impact on financial reporting accuracy and the organization’s overall reputation. Here are some key factors to consider when selecting an auditor for your nonprofit:
1. Professional qualifications:
First and foremost, you have to make sure that the auditor is a licensed and certified professional, like a Chartered Professional Accountant (CPA). Verify their credentials and ask them how they go about staying updated with relevant regulations.
2. Industry expertise:
Look for an auditor with experience in auditing nonprofit organizations. Accounting Standards for Not-for-Profit Organizations are different than they are for for-profit organizations. They need to be well-versed in the specific accounting and reporting requirements that apply to Canadian nonprofits, including those set by the Canada Revenue Agency (CRA).
3. Fees and budget:
It’s critical to gain a clear understanding of the auditor’s fees and the scope of services covered by the proposed fee. Review the budget and any potential additional costs that may arise during the audit. Always ask the question, what could the sources of extra billing be and make sure it’s clear as to what their expectations are of your organization. Beyond that, you should require that all out-of-scope costs are clearly articulated prior to being incurred.
4. Size of firm:
The size of the firm doesn’t matter as much as the size of the organizations that they typically audit. While many large firms do a great job of auditing small organizations, it’s important to know the people you are working with and who they are accustomed to auditing. This is important because the audit approach will differ quite considerably.
5. Audit approach:
Understand the auditor’s approach to the audit process. They should be able to explain their methodology, including how they plan to assess risks, test internal controls, and gather evidence to support their findings. You should also ask them whether they work on-site only, or if are they able to complete the audit off-site.
6. Fit and values alignment:
Choose an auditor who takes the time to really understand your nonprofit’s mission, operations, and specific financial challenges. This understanding is very important for conducting a meaningful audit.
7. Independence:
The auditor should be independent and impartial. They should not have any conflicts of interest that could compromise their objectivity. Independence is essential for ensuring an unbiased audit. Having your financial statements audited means that an independent third party is providing assurance on your financials. By definition, this means that they should not be involved in preparing the numbers. The accounting records must be prepared by the client and it is most prudent to engage an independent firm to prepare your books if you don’t have those skills in-house.
8. Reputation and track record:
Request references from other nonprofit organizations that the auditor has worked with. Research their reputation within the nonprofit sector and check for any disciplinary actions or ethical concerns.
9. Availability and timelines:
Always make sure that the auditor can commit to the necessary timelines and deadlines for the audit process. Discuss the timeline for the audit, including the expected start and completion dates. Be sure that the auditor can meet any regulatory deadlines for reporting. Any delays in the audit can impact financial reporting and compliance requirements.
10. Technology and tools:
Another important thing to ask about is the auditor’s use of technology and auditing tools. A modern auditor should be equipped to efficiently and accurately perform audits using current software and technology.
11. Insurance and liability coverage:
While it may fall into the fine print, it’s important to make sure the auditor has appropriate professional liability insurance coverage. This protects you in the event of errors or omissions during the audit process.
12. Communication:
It may not be top of mind when searching for an auditor, but it’s important to evaluate the auditor’s communication skills. They need to be able to explain complex financial concepts and findings in a clear and understandable manner to the Board and management.
13. Conflict resolution:
It’s important to establish a process for resolving any disputes or disagreements that may arise during the audit engagement. Having a clear mechanism for conflict resolution can help avoid complications.
14. Continuity:
While not critical, it’s probably a good idea to ask about the team that will be working on the audit and inquire about the likelihood that you will work with the same team from year to year. Consistency in audit personnel can lead to a smoother audit process and may even lead to lower costs in the long run.
Choosing the right auditor is a big decision that requires careful consideration. It’s important to do due diligence, interview potential auditors, and select one who not only possesses the necessary credentials and technical expertise, but also aligns with your nonprofit’s values and mission. A strong auditor can provide valuable insights, improve financial transparency, and contribute to the overall success of the organization.
At Enkel, we work with Canadian nonprofit organizations to provide reliable, accurate monthly bookkeeping, payroll, accounts payable, and controllership services. If your nonprofit is looking for a bookkeeper to handle the books, get in touch with us today to learn more about our nonprofit accounting services.
