Do Charities need an audit? by Stewart Russell
In fact, under the Charities Act, only charities whose total annual expenditure exceeds $1,100,000 must be audited. Those charities with annual expenditure between $550,000 and $1,100,000 require an independent review, which is not as extensive as a full-blown audit.
There will be a number of Charities whose Constitution’s state that their financial statements need to be audited but is this necessary or even desired.
Many of these Constitution’s would have been written many years ago, when audits were potentially performed by the local retired bank manager or JP.
Nowadays, if an audit or review is required by the Charities Act, it must be performed by a Qualified Auditor recognised by the Chartered Accountants Australia & New Zealand or by CPA Australia.
Qualified Auditors are required to follow the International Auditing Standards, with numerous regulations and mandatory procedures which make the audit a costly exercise. This cost depends on the complexity of the organisation, systems, level of controls and types and volumes of transactions. But as a minimum is likely to be a few thousand dollars.
If the charity expenditure is less than $550,000 – you should consider if the benefit of an audit warrants the potential cost.
A common reason given for an audit is to stop someone misusing the charitable funds. Unfortunately, this is the ambulance at the bottom of the cliff. By the time the financial statements are audited, the cash has long gone, and all the auditor gets to do, is show the charity where the money went, and what controls they should have had in place to prevent it happening in the first place.
If a well-run charity has a good system of controls, segregated duties, trustee oversight, ensuring that one person doesn’t have total control over all the finances, income, and expenditure – they need to decide if they need an audit.
Ensuring robust systems and controls are in place could be a better use of hard-earned fundraising income, rather than paying for an annual audit.
It is not correct that an audit is always required by charity funders. It depends on the level of funding. Foundation North used to require an audit if the grant application was over $40,000 – I understand from them that this changed in April 2022. Whether an audit is required is governed by the applicant’s Constitution of Charities Act. I suggest you check your Constitution and decide if it is still relevant.
Funders just require proof that grants have been spent in accordance with the application including copies of invoices and bank statements.
Trustees are busy people, fitting in their volunteer work around family and business lives. Deciding what to do for the best interests of the charity can seem a daunting task.
To help trustees understand if they need an audit and answer any questions you might have PKF Francis Aickin will be running a free seminar on Tuesday 6th September at 5.15pm to explain the requirements and the pros and cons of an audit.
Please email kaitaia@pkffa.co.nz to register.