A Cheaper Alternative to Church Audits

“Agreed Upon Procedures” answers the right questions

An Annual Problem for the Church Board

When church boards attempt to exercise their fiduciary responsibility and they ask “Should we have an audit?”

I believe in many cases, the answer is NO!

Underneath it all, they desire to have an independent financial professional ‘take a look’ at the books and tell them “Are things OK?” – and - “Is there anything we should improve?”

Audits don’t answer these questions.

  1. They tell the reader whether the financial statements are “fairly stated in accordance with Generally Accepted Accounting Principles”. Other than a lender, does anyone care about GAAP?
  2. They require the auditor to do things that church leaders don’t need like written correspondence with the church lawyer.
  3. And they are expensive because the CPA must perform all the AICPA’s tasks that make up an audit.

Compilations and Reviews are not much better.

In those cases the report will state that the report is NOT an audit, and it will list all the procedures that the CPA DID NOT perform.

“Agreed Upon Procedures” : A cheaper – and better – way to “check the books”

An Agreed Upon Procedures (AUP) engagement is defined mutually by the church and the CPA. Rather than following rules made by the AICPA or the FASB, the CPA simply follows a work plan devised with the Church in advance. The written report is an in-depth discussion of the work that was done and the resultant findings. This format allows the independent professional:

  1. The freedom to “keep digging” into potential problems even when the item may be immaterial to a GAAP audit.
  2. The freedom to limit the scope of work when controls and tests indicate that no further work is needed. This removes work requirements that must be performed in full GAAP audits – like corresponding in writing with the church legal counsel.
  3. The freedom to address areas where improvements may be made.

In our firm these work plans will likely include some – or sometimes all – of the following.

  • Cash Controls and a review of bank reconciliations
  • Separation of Duties
  • Compensation and Employment Controls (including Pastoral housing allowance and 1099 contractors).
  • Financial Reporting Controls
  • Budgetary Controls
  • Physical Controls of building access and computer files
  • General Controls (Minutes, insurance, etc.)
  • Other items of particular interest to the church.

Since the church defines the scope of work, a multi-year plan is sometimes developed where all topics are addressed over a two or three year period. This provides a cost controlled way to address a fiduciary responsibility of the governing board.

Lastly, the CPA need not be local. Technology allows CPAs to perform this work remotely through telephonic interviews with key personnel, mutual “screen-sharing” meetings, and examination of pdf or fax documents transmitted through secure technology like DropBox. In our firm, we find these techniques to be very cost effective.

Please call me with questions or for a complementary discussion of this topic, at 877-823-3101 x1.