Antonio Coffield – Assessing Your Small Business and Non-profit: Self-evaluation & Internal/External audits

Without question, the only way a business or non-profit will succeed in the long run, is to ensure at regular intervals, the critical issue of “How are we doing as stakeholders or how are we doing as board members?” will need to be answered honestly.

Scheduled, regular occurring self-evaluation is necessary to tell you what you can and cannot do. For instance, it will help in explaining what the stakeholders or board are ‘thinking’ at a particular point in time. The responses will also help determine the governance that may need to be adjusted or enforced. Your stakeholders or board strengths and weaknesses can be identified here and explored at a later date.

 

Keep in mind this does not take the place of an official organizational assessment or serve as an indicator of the CEO or Executive Director’s performance. It will also not solve a ‘difficult’ stakeholders or board member.

 

Most board members have learned to be board members ‘on the job’ and as such may not have had the best experience in the past or due to lack of training, may not be utilized to their full potential. A self-evaluation will assist in these areas.

 

The self-assessment is a step by step process involving, who owns the results, who reviews and administers the results. The governance of the agenda and implementing the management in the board’s regular meetings/activity. Identifying and using specific methods to keep the results alive and in use will be vital to ensuring a ‘moving forward’ state.

 

The use of an independent consultant to administer the stakeholder or board self-evaluation is the key to achieving a successful, unbiased result. Another process directly aimed at the small business or non-profit as an organization would be to perform regular audits as another measure of self-evaluation.

 

 

Audits

 

Before we discuss audits, it is helpful to briefly look at what audits are and what purpose they serve. Simply put, an audit is an independent examination of a process or procedure. Two points should follow this explanation. The first point is that audits can be completed using the company resources itself (internal) or engage an independent professional company (external). The second is that the best audit is one using an independent company or an internal individual who did not perform any of the work being audited. Lastly, audits are the only way you will have proof that your small business or non-profit has carried out the proper process or procedure and that the policies in place are the ones being governed. The bottom line is that your non-profit is operating on sound footing.

 

Internal Audits

 

As long as your small business or non-profit has a certified internal auditor or a designated professional accountant, you can begin the audit process immediately. Keeping in mind many small business or non-profits do not employ a specific internal audit team, they may still perform a self-audit as a means to verify that the proper controls are in place and being used. There are self-assessment tools online to assist small business, and non-profits evaluate managerial, financial and operational policies and procedures.  Self-audits can be built into daily routines; for example, in finance, the printing of and confirmation of previous days transactions tied to the general ledger to verify the numbers match.

 

External Audits

 

An accredited CPA (certified public accountant) firm is typically used to perform the audit. The external company will follow stringent guidelines that ensure all work is done according to regulatory compliance set out by the American Institute of Certified Public Accountants. Most small business and non-profits will hire external auditors to attest to the company or organizations financial statement. The external auditor will select one or more specific line items and test all accounting controls, processes and procedures surrounding the amount. This may result, for example, in inventory counts to match usage/sales or expense accounts verified for accuracy and authenticity.

 

The Audit Opinion

 

Whether internal or external, the result of an audit is the written audit opinion. This opinion will state the scope of the work performed, all policies and procedures tested, as well as the results of each test (positive or negative). The opinion will note any material differences occurring during the testing process in detail and discuss recommendations (if needed) for future changes or if any additional controls are required to be in place.

 

Small business and non-profits will undergo audits for many reasons. Some may require a business loan and will need to show strong business management is in place. Others will need to engage in the audit process due to regulatory changes. Theft, embezzlement, fraud or operational inefficiencies are also common reasons to begin the audit process for independent verification.

 

The audit process serves its purpose in evaluating internal control policies, and procedures are met to both the stakeholders and governing bodies related to the small business or non-profit. Successful audits go a long way to underscore support in winning the confidence of investors, funding, customers, and donors, to name a few.