Audits

Audits are procedures for independently verifying the accuracy and fairness of the accounting and reporting systems and records. They also ensure that there are proper systems in place which are consistently followed, and they make recommendations for improvement.

Annual external audits of NGOs or CBOs may arise from any of the following:

  • they may be required by in-country legislation
  • they can be initiated by donors
  • they can be internally requested by the NGOs and CBOs themselves
  • they can be initiated by the NSP, which provides NGOs and CBOs the opportunity to have some assurances over their systems when they can’t afford external auditors or an internal audit function. In fact doing an audit may be a key way for a NSP to provide TS in the area of financial controls to its partner NGOs and CBOs.

There are considerable benefits to an external audit including:

  • credibility for the organisation
  • recommendations about accuracy and fairness of the financial information
  • an in-depth learning process for the organisation, with advice on improving financial systems and procedures.

Issues to consider

It is important for the NSP to discuss with the NGO or CBO at an early stage of planning the grant, whether the audit is a statutory requirement.

The best preparation for external audits is for an organisation to have developed its own internal audit systems and procedures. Usually, this involves one or more responsible persons verifying the accuracy of systems and reporting on a periodic spot-check basis.

The quality of, and hence reassurance offered by, the audit depends on the quality of the auditors. Selection criteria for auditors need to be carefully addressed, and will usually include:

  • Country coverage (where an NGO may operate in more than one area
  • Expertise
  • Client list
  • Qualifications.

Since not all firms of auditors will have sufficient experience of the particular issues involved in auditing NGOs and CBOs (as opposed to commercial organisations), it may be helpful for NSPs to develop lists of auditing firms with relevant experience.

Resources

External Audit Guidelines

Guidelines developed to set out the principles, policies and standards required for the annual audits that the International HIV/AIDS Alliance requests from its Linking Organisations.
International HIV/AIDS Alliance, 2001, Word, 8 pgs, 47 kb