- Charity Ali

An audit is a thorough checkup or inspection of an organization’s financial records, processes, and activities. It’s done by an independent person or team to make sure everything is in order, accurate, and follows the rules and standards set for financial reporting and management.

As a small NGO think of it as a way to ensure that the organization is handling its money and resources responsibly, that the financial statements accurately reflect its financial health, and that it’s following all the necessary laws and regulations. The goal of an audit is to provide assurance to stakeholders, like donors or the public, that the organization is trustworthy, transparent, and accountable in its financial practices.

From my experience and have worked with small NGO some usually avoid audit for several reason.

  • Fear of finding some small NGO are concern that an audit could uncover deficiencies or irregularities in financial management practiceTop of Form which could damage the reputation of the organization and lead to more scrutiny

  • Complexity Time consuming foe some small NGO because they lack capacity internally to manage the audit processes

  • Burden for some small NGO is a burden for them which need more administrative effort

Importance of Audit to small NGOs are:

  1. Transparency and Credibility: Audits provide a clear picture of the organization’s financial health and how funds are being used. This transparency builds trust among donors, stakeholders, and the community.

  2. Accountability: Small NGOs often rely on donor funding and public support. An audit ensures that the organization is using funds responsibly and in alignment with its mission and objectives.

  3. Compliance: In many countries, NGOs are required by law to undergo annual audits. Compliance with these regulations is essential to maintain the organization’s legal status and reputation.

  4. Identifying Weaknesses: Audits help identify weaknesses in financial management practices, internal controls, and compliance with policies and regulations. Addressing these weaknesses improves the organization’s overall efficiency and effectiveness.

  5. Improving Financial Management: Audit recommendations provide valuable insights for improving financial management practices, streamlining processes, and enhancing internal controls. This helps the NGO operate more effectively and efficiently.

  6. Enhancing Donor Confidence: Donors often look for organizations that can demonstrate financial accountability and transparency. A clean audit report enhances donor confidence and may increase the likelihood of securing future funding.

There are two main types:

  1. Internal Audit: This is done by someone within or outside the organization to review systems and procedures set by the Board and managers. It helps improve efficiency and effectiveness without being punitive.

  2. External Audit: Conducted by independent auditors, it verifies that your financial statements accurately reflect your organization’s finances. This type is often required by law and helps build trust with stakeholders like donors.

Why Audits Matter for your organization whether local or national (NGO)

  • Transparency and Accountability: Audits show that your NGO is open about its financial operations and accountable for its use of funds.

  • Legal Compliance: In many countries, it’s a legal requirement to have your financial statements audited annually.

What Auditors Look out

  • Accuracy: Auditors ensure that your financial statements provide a true and fair picture of your organization’s finances.

  • Compliance: They check that your use of funds aligns with your organization’s goals and objectives.

Audit Reports

  • Unqualified Opinion: This means everything looks good, and your financial statements are accurate.

  • Qualified Opinion: There are some issues, but overall, your financial statements are okay.

  • Adverse Opinion: There are significant problems with your financial statements that need to be addressed urgently.

Expectation during an Audit

  • Limited Scope: Auditors focus on testing a sample of transactions rather than checking everything.

  • Feedback: Auditors may provide a management letter highlighting weaknesses in your internal control systems and recommendations for improvement.

Tips for SMALL NGOs during Audits

  • Prepare: Make sure your records are organized and accessible to auditors.

  • Cooperate: Be open and honest during the audit process. Auditors are there to help improve your financial systems.

Conclusion

Audits are important for NGOs to maintain transparency, accountability, and trust with stakeholders. By understanding the audit process and cooperating with auditors, your organization can strengthen its financial management practices and ensure the effective use of funds.