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Non-Profit Audit


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?

Solution Preview

There are a few things you should be thinking.

1. Several facts have already indicated that this should be treated by the auditor as a high risk audit. It needs to be handled accordingly. Because there is a likely misstatement and potential frauds taking place, all audit work should be listed as high risk. This, in turn, means that testing would be performed in line with a high risk audit.

2. The treasurer has already shown signs of an issue because (a) he didn't want you to come to the physical location, (b) the secretary wasn't made ...

Solution Summary

This solution provides an extensive discussion on how to proceed with a non-profit audit when there is a high degree of risk from fraud. All material circumstances in the scenario are thoroughly discussed.