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Non-Profit Audits

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Over five years ago, I received a phone call from the headquarters of a non-profit organization to which I have belonged for over thirty years. They advised me that they had received word from a few members of one of the local organizations in Texas that they had some concerns that there might be some financial impropriety going on. They asked me if I would fly to Texas, spend a few days with the local "volunteer" treasurer of the organization, audit the books, and make a report back to them. I said I would be happy to do so. I do audits for them, free of charge, every year or two. They indicated they would call the local treasurer in Texas and advise them that they had been selected for a "random" audit.

A week later, the local treasurer in Texas called me on the phone and advised me he would be happy to send me the "books" via postal mail, so that I would not have to make the trip. I said thanks, but that I would probably have some questions and thus preferred to make the trip. I had been informed that he had been the volunteer treasurer for over ten years and during that time had donated hundreds of hours of his time to the organization. I was also aware he had a PhD in the biological sciences. I had no idea if he had any training in accounting.
Three weeks later, I arrived in Texas, rented a car, and called the local treasurer to let him know I was in town and on my way to his apartment as previously arranged. He did not answer. He continued not to answer as I called during the hour drive to his apartment. He also did not answer his doorbell. I went and checked into a nearby hotel and continued to call him for the next three hours.
Finally, I decided to call the secretary of the local organization to find out if he knew the treasurer's whereabouts. Much to my surprise, the local secretary did not even know I was coming to town. He indicated he would try to find out the whereabouts of the treasurer.

At this point in time, what should I, as the auditor, be thinking?

Question #1: What should I do next?
Question #2: Did you find it strange that a copy of the word document from the local CPA firm was kept as a file on a floppy disk by the local treasurer? This "CPA Firm" had been providing letters to the local organization for the past decade indicating its "audit findings" regarding local organizations financial records.

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Solution Summary

This solution provides a detailed discussion regarding the non-profit organization and the fraud that is taking place. All points are fully addressed in the discussion.

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The treasurer had apparently destroyed them all including the bank statements. <-- this is fraud. He will be charged criminally for this. If this were a public company, he'd also be charged under the SOX rules by the PCAOB and the SEC.

Question #1: What should I do next?

You should immediately call for a meeting with the remaining members of the board of directors. The board of directors should assemble the facts as they happened, and law enforcement should be notified, if they haven't already been notified. As the auditor, you can then begin searching for any additional evidence that would pertain to the financial matters of the non-profit, after the other steps as indicated have been completed. The main ...

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