What does that mean? In the case of an audit, the accountant provides external assurances that financial reporting is accurate. That means that lenders, donors, and vestry members can feel confident that financial reports fairly represent the church’s true financial picture.
The next step down, a review, provides limited external assurances that financial reporting is accurate. That means means that lenders, donors, and vestry members can feel some assurance that financial reports fairly represent the church’s true financial picture. In this case, more of the burden of proof, if you will, rests with management, which in this case consists of Bob Malm and other church staff.
Still another step down is the AUP, which provides no assurances as to the accuracy of financial reporting, but instead relies entirely on the representations of the client. As such, it typically is used to provide internal assurance. For example, if I own company A, and I am planning to sell it, I might ask the auditor to confirm that I really have $1 million in receivables, so that I can confirm that I am selling for the right price. But the work is done for my benefit, and it tells the buyer or the bank nothing that I can rely on as part of its due diligence.
The problem at Grace Church is that, for all that time, Bob Malm told the vestry that an audit was being performed, when it was an AUP that was being performed. That begs that question: Why the misinformation?
When I served on the Grace vestry, the first sign of trouble was that the church had budgeted $3,000 for the audit. Say what? Having headed up several nonprofits, I know full well that an audit for a nonprofit that pulls in $1 million a year should, even with very clean books, cost about $20K. That right there tells you that something is very much amiss.
- Seeing past audit reports.
- Accessing detailed information regarding compensation for the rector and other key personnel, including any bonuses, loans, or other insider transactions.
- Seeing the budget.
- Seeing financial reports, including budget to actual and variance information for individual line items.
- Seeing school board and financial reports, and board minutes?
- Seeing executive committee minutes (there aren’t any) and vestry minutes, as well as financial reports?
- Do vestry members not see school financials, which comprise the lion’s share of church income and expenditures?
- Do vestry members not see the audit engagement letter?
- Do vestry members and parishioners not see the audit report?
- Are the audit report and audited church financials not available via the church website?
- Did even long-time church members serving on the vestry in 2014 not know that the church had lent $100,000 to Bob Malm for the down payment on his home?
- Does the church not have a finance committee that is in charge of the audit?