Every Northwest Adventist institution has an obligation to carry out its mission with an honest regard for financial accountability. Part of that accountability comes in the form of regular audits of financial records — many of which are done by General Conference Auditing Services regional office staff. Here's a quick overview of the typical auditing process and why it matters.
Q: What are the main duties of an auditor who audits the finances of a church, school or conference?
A: The auditors' main responsibility is to report whether church entities — academies, Adventist Book Centers, publishing houses, conferences, unions, etc. — have prepared their financial statements in accordance with Generally Accepted Accounting Principles and complied with denominational policies. Auditors examine each organization's financial records and determine if their financial statements are materially correct. In addition, auditors review core policies — a specific list of financial policies compiled by the General Conference and adopted by North American Division. Each church entity is expected to follow the working policies of the church as described in the NAD Working Policy book.
Once an audit is complete, GCAS issues an opinion on the financial statements. This opinion describes whether financial statements are presented fairly and whether they comply with Generally Accepted Accounting Principles as accepted by the denomination. A Report to Governance is prepared that describes any NAD policy compliance findings and any material weaknesses and significant deficiencies found during the audit.
GCAS only audits institutions that are included in Seventh-day Adventist Yearbook. Local churches, junior academies and elementary schools have reviews done by the local conference.
Q: What limitations or guarantees do audits provide?
A: Even though auditors are employed by and perform their duties on behalf of the GC, their work is performed in accordance with the same standards as if they were in public practice.
Audits provide reasonable assurance that financial statements are free from material misstatement. While reasonable assurance is a high level of assurance, it's not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with Generally Accepted Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.
Q: What does a typical school or conference audit NOT do?
A: A financial audit does not make a final determination on whether an organization is financially healthy, although auditors do evaluate whether the organization will be able to operate at least 12 months after the audit report. The goal is to ensure that the financial statements are presented fairly, in all material respects, so the organization’s management and governing board can make informed decisions regarding its direction.
Q: What specific kinds of anomalies do auditors watch for?
A: Auditors look carefully at the internal controls of the organization. Does the provided documentation adequately support the record of balances and transactions in the financial statements? Or are there gaps in that documentation that leave the records open to question?
Q: What process is in place to deal with fraud if it is found by a GCAS auditor?
A: Fraud is not a common occurrence in GCAS audit work; however, it does unfortunately happen at times. If fraud is discovered or suspected, the auditor will discuss the findings with their regional manager. Then the issue will be discussed with the officers of the organization and, depending on the nature of the item, the next higher organization. Auditors will also include this in their report to the local organization’s board. It's up to the management and/or the board to determine the actions the organization will take. GCAS does have auditors who are specially trained in fraud detection, and they can perform a fraud audit if desired.
Q: What does an audit cost? Who pays for the school or conference audits?
A: NAD pays for 50% of the cost of the audit. Within the Northwest, North Pacific Union pays 25%, and the remaining 25% is passed on to the conference where the audited institution is based. Each conference has a different policy about whether or not the entity audited pays a portion of their audit costs. The billing structure is on a cost-recovery basis. There is no profit margin built into GCAS rates. The goal is to provide excellent audit services to the Adventist Church at the best value possible.
Q: How often are institutional audits performed?
A: GCAS performs a financial audit for each organization on its list annually. They also do a review of each local conference trust program once every three years. So, each year the North Pacific GCAS office generally has 32 financial audits and a couple of conference trust reviews to complete.
