Audit Procedure of NGOs

The audit procedures for Non-Governmental Organizations (NGOs) involve a comprehensive examination of their financial statements, compliance with regulatory requirements, and the effectiveness of internal controls.

It’s essential for auditors of NGOs to have a deep understanding of the organization’s unique characteristics, operations, and funding sources. Additionally, they should stay informed about any changes in accounting standards and regulatory requirements that may impact the audit process.

• Understanding the Organization:

Obtain an understanding of the NGO’s mission, objectives, and activities. This includes understanding the regulatory environment in which the NGO operates.

• Risk Assessment:

Identify and assess the risks relevant to the NGO’s financial statements and operations. This includes risks related to funding sources, regulatory compliance, and internal control weaknesses.

• Planning:

Develop an audit plan based on the assessed risks. Determine the scope of the audit, materiality levels, and the allocation of resources.

• Internal Control Evaluation:

Assess and evaluate the NGO’s internal controls, including financial reporting, compliance with laws and regulations, and safeguarding of assets. Identify any weaknesses or deficiencies.

• Compliance Testing:

Verify compliance with applicable laws, regulations, and donor agreements. This includes reviewing documentation related to grant restrictions and conditions.

• Revenue Recognition:

Examine the recognition of revenue, particularly contributions and grants. Ensure that revenue is recorded in accordance with accounting standards and donor restrictions.

• Expense Verification:

Review and verify the NGO’s expenses, ensuring that they are properly classified, recorded, and supported by appropriate documentation. Evaluate whether expenses are consistent with the organization’s mission.

• Cash and Investments:

Confirm the existence and valuation of cash, bank balances, and investments. Assess the liquidity of the NGO and whether there are any restrictions on the use of funds.

• Asset Verification:

Verify the existence and valuation of significant assets, such as property, plant, and equipment. Ensure that assets are recorded at their appropriate values and that depreciation is calculated correctly.

• Liabilities and Contingencies:

Review liabilities and contingent liabilities to ensure they are properly disclosed in the financial statements. This includes assessing the adequacy of provisions for future obligations.

• Governance and Board Oversight:

Evaluate the governance structure and the effectiveness of the board’s oversight. Assess the independence and competence of the board of directors or trustees.

• Related Party Transactions:

Identify and evaluate any related party transactions. Ensure that such transactions are properly disclosed and comply with relevant regulations.

• Grant Compliance:

For NGOs receiving grants, assess compliance with grant terms and conditions. Verify that grant funds are used for their intended purposes and that reporting requirements are met.

• Audit Documentation:

Maintain comprehensive audit documentation that provides evidence of the work performed, the conclusions reached, and the support for the auditor’s opinion.

• Communication and Reporting:

Communicate audit findings and issues with management and the board of directors. Issue an audit report expressing the auditor’s opinion on the fair presentation of the financial statements.

• Follow-Up Procedures:

Follow up on any prior audit recommendations and assess whether management has taken corrective action.