Thinking about my experiences traveling to different chapters, the financial audit is one practice that appears to have the most confusion or ambiguity surrounding it. Conducting a proper financial audit is the best way to ensure that a chapter’s financial operations are in order and financial reports are accurate. The main purposes of a financial audit are to:
- Determine accuracy of financial statements
- Ensure appropriate internal controls (prevent fraud and provide checks and balances)
- Ensure financial policies are appropriate/documented
Before jumping in, it is important to assess what kind of chapter you are from a financial standpoint, which depends on the complexity and size of your budget. As a good rule of thumb, we recommend that chapters that bill over $200,000 annually engage a professional to conduct a financial audit. Chapters that fall in the secondary threshold of billing $50,000-$200,000 annually could likely get by utilizing their finance committee with alumni advisor oversight. Chapters that bill less than $50,000 annually may rely solely on their financial committee (but additional oversight is never discouraged).
Step one in this process is to evaluate how much your chapter utilizes OmegaFi for the billing and collection of all revenue. Any funds that are centrally collected by the chapter should be reviewed with the rest of the audit. Depending on how much the chapter utilizes OmegaFi will depend on how much detail is needed for the audit. If a chapter uses OmegaFi exclusively, the audit may be as simple as the finance advisor verifying all of the records on OmegaFi.
For funds not collected through OmegaFi, regardless of amount, there should be a separate verification/audit process. For this, we always suggest that chapters utilize their finance committee and finance advisor. If that isn’t an option, consider utilizing the executive board or chapter advisor. The point is to ensure that the treasurer is not the only one auditing the financials, as this would completely defeat the purpose of the audit.
The audit itself only needs to be conducted once a semester or once a year. The audit team will want to verify all income is properly accounted for by looking at the amount of money billed out vs. the amount of money collected. They should go through the roster and ensure that each member of the chapter has met their respective financial obligations. Separately total the amount of money that should be collected based on this process and compare that figure to the amount the treasurer has recorded. They’ll want to follow the same type of process when verifying expenses. Separately total the amount that should have been spent and compare that with the amount that was actually spent.
The expense side raises some other important issues for the audit team to tackle. In addition to ensuring the proper amount of money was spent, they’ll need to ensure that adequate approval (according to their specific chapter bylaws) was given to spend that money. This is the part that gets a little touchy as its purpose is to root out any possibility of theft or misuse within the chapter by those responsible for stewardship of its funds. This process embodies the idea of “trust, but verify.” When looking at chapter theft issues, three things are always present: ability, access and desire. There is not much we can do about desire, but the chapter can definitely protect themselves against ability and access.
If your chapter is conducting an audit for the first time, recognize that there is no universal standard and that there will be some amount of subjectivity in this process. However, virtually anything is better than nothing in this case. As a guide, here is a simple checklist you might follow while conducting your audit. If you have any questions, feel free to contact our director of finance at email@example.com.