One way to assess the strength of your financial processes, procedures, and controls is to put them through the scrutiny of an audit. There are a few different types of audits that can be performed, from assessing the strength of your controls, to opining on the reasonableness of your financial statements.
Before you decide on what type of audit you need or who will perform it, you should decide what your needs are. Your specific needs will dictate the type of audit that should be performed. For example, do you need accurate financial statements to present to your board, congregation, or banking institution? Do you need to review your internal processes to assess compliance with your policies and procedures? Do you need to evaluate the effectiveness of a specific function in the church like payroll or accounts payable?
Additionally, you need to consider what funding and resources are available. Do you have qualified businessmen or -women within your congregation who are willing and available to perform a review? Do you have a trusted relationship with a local public accounting firm? Do you have available funding to pay for an in-depth audit?
Finally, you should review your constitution and bylaws. This document may have specific language regarding the type of audit required and how often it should be completed. Your bylaws may require audited financial statements annually, which would indicate an audit by a public accounting firm. However, if your bylaws only require a review of your finances on a regular basis, this could indicate a review by qualified businessmen and -women in the organization would suffice.
A financial statement audit is performed by an independent public accounting firm (called an external audit). The public accounting firm will ensure your organization’s financial statements comply with generally accepted accounting principles (GAAP), and a certified public accountant (CPA) will express an opinion on whether those financial statements are relevant, complete, and fairly presented.
The focus of the public accounting firm is very specific. The accounting firm will focus on the presentation of the financial statements and compliance with GAAP. They will perform specific tests of internal controls and gather sufficient evidence to base their opinion. They will focus on material errors—those errors that will result in a misstatement of the financial statements and affect the decisions of informed readers of those financial statements.
By choosing a financial statement audit, your church is choosing to compare your financial management reporting and processes to generally accepted accounting principles. This means that many of the rules and requirements enacted to protect shareholders of public companies will be applied to your organization as well.
However, if your organization needs an audit that focuses on internal controls, operational effectiveness, and efficiency, or on ways to reduce risk, this audit can be performed by qualified people within the organization (called an internal audit). Certainly, a local CPA firm can provide this same type of review, but an internal audit can be performed by volunteers in the organization, resulting in a significant cost savings.
While a church may not have a dedicated internal auditor on their staff, they probably have access to qualified businessmen and -women in their congregation who are knowledge about corporate governance, accounting practices, and risk management.
If a financial statement audit isn’t what your organization needs, then consider an internal audit performed by a team of qualified volunteers to assess the reliability and integrity of your financial information.
Review the following table to determine which type of audit is right for your church.
| External Audit | |
| Process | Review of accounting practices and comparison to GAAP |
| Focus | Externally prepared financial statements that will be materially accurate |
| Benefit | Confidence in your accounting process and financial reporting |
| Internal Audit | |
| Process | Review of financial operations and internal controls for strengths and weaknesses |
| Focus | Testing the accuracy of internally-generated financial statements |
| Benefit | Confidence in your financial management process |
If you would like to perform an internal audit of your church’s financial processes, see Integrity at Stake: Safeguarding Your Church From Financial Fraud. It includes a step-by-step audit guide that a team of 1 to 3 people could complete in a short amount of time.
