News & Insights
Understanding the Difference Between a Process Review & Audit
August 17th, 2022
Accounting & Outsourced Solutions |
Audit & Assurance |
Financial Statement & Audit Preparation
Nonprofit leaders have plenty of tasks keeping them busy – but none may be more important than maintaining their organization’s financial viability. Proper financial management fuels associations, charities, and private foundations to fulfill their missions and make an impact in the communities they serve.
While keeping tabs on your financial controls is critical, it can be easy to overlook the stability of your internal financial processes. In addition, you may not know what to look for or have the time or expertise to manage a risk assessment.
Many nonprofits default to believing an audit is the best way to ensure their organization’s financial processes and controls are up and up. But that may not always be the case.
What is a Process Review?
A process review reviews all your financial processes and internal controls. We are on a mission to understand your current practices and identify ways we can make you more effective, efficient, and fraud-proof. We also review ways to help your nonprofit reduce time-consuming activities and duplicative efforts while aiming to maintain the controls that keep the organization and its funds safe.
Process reviews begin with hosting conversations with everyone involved in the financial elements of your organization. Then, we take the insights from those meetings and create a customized report highlighting specific concerns and areas for improvement through tailored risk and efficiency matrices.
We offer detailed, realistic suggestions for addressing any issues we find and prioritize our recommendations – so you have a clearer understanding of which issues need to be tackled first. Items with the most significant risk or the greatest possibility of happening are prioritized, so you can focus on what matters most and see immediate, tangible results.
The last step of the process is perhaps the most important. In each process review, we offer specific solutions to resolve risks. These may include leveraging technology to allow for electronic invoice approval or streamlining the bank reconciliation. If board reporting is an area of concern, we may suggest and help design a reporting dashboard that allows for quick, easily understood monthly reports. Every process review report will streamline your processes to increase internal controls, help prevent fraud, and save the organization time and resources.
What is an Audit?
A financial statement audit is the most traditional attest service for a nonprofit. An audit is the highest level of assurance a CPA can offer and provides reasonable (not absolute) assurance your financial statements are materially correct. In simple terms, an informed reader of a nonprofit’s financial statements could make an informed decision based on the information in the statements. Auditors are required to understand your organization’s internal controls and assess overall risk, but auditors aren’t looking to streamline processes.
At the end of the audit process, you receive an audit report, which will follow specific requirements and provide an auditor’s opinion regarding whether your financial statements are materially correct. In addition, you may also receive a management letter containing a general overview of significant internal control issues identified. The management letter, however, is not a requirement of the audit process.
After your audit, you will clearly understand your organization’s financial statements and have audited financial statements to provide to the board and other stakeholders.
While a financial statement audit requires an auditor to understand your internal controls, audits are not designed to find fraud or test whether those controls function the way you want them. Good auditors often provide general suggestions on internal control improvements, but their primary function is determining if your financial statements are materially correct. This could leave you with blind spots around whether your controls genuinely work in your best interest.
How Do I Know Which Is Right For Me?
Many organizations think they should get either a process review or an audit. Still, there are many instances where these go hand in hand – nonprofits can reap benefits from experiencing them.
Some nonprofits must have an audit (based on federal funds received, grantor requirements, board requirements, or one of many other reasons to have a financial statement audit).
Suppose your organization has experienced significant turnover, received new funding sources, created new programs, or wants to improve or take a deep dive to ensure your processes are rock solid. In that case, a process review is for you!
Combining a process review with a financial statement audit provides a complete picture of the organization’s finances and sets you up for future success.
Maner Costerisan is here to help you understand the differences between these two very important services and help you know which one you need for your organization to thrive.
For more questions regarding process reviews and how they could help your nonprofit, contact Bethany Verble, CPA, CFE, Manager, and process review expert at firstname.lastname@example.org or call us directly at 517-323-7500.