Internal Audit Guide for CBOQ Churches updated August …

1 5 International Blvd | Etobicoke, ON | M9W 6H3 | church Audit GUIDEP repared for Churches of the Canadian Baptists of Ontario and QuebecLocal church Audit Guide Page 1 of 26 Reviewed 08/2014 1 This booklet is given to you as a service of the Canadian Baptists of Ontario and Quebec. We hope you will find it useful. If you have suggestions for making it better, please telephone, write or email us at: Peris Kamotho, Director of Administration and Treasurer Canadian Baptists of Ontario and Quebec 5 International Blvd, Etobicoke, ON M9W 6H3 Tel: (416) 622-8600 Fax: (416) 622-2308 Email: Appreciation is expressed to the cboq Finance Oversight Committee for their assistance in the preparation of this document.

2 Much of the material has been borrowed from similar documents prepared by The United Methodist church and the Massachusetts Conference of the United church of Christ and is used with permission. DISCLAIMER The Canadian Baptists of Ontario and Quebec are not responsible for the conduct of local church audits, nor do they provide legal or financial advice to local Churches through this booklet. local Churches should seek assistance and advice from their local advisers when specific issues arise. This Guide is provided to you as a service; it should be used to increase knowledge of auditing principles within your local church , including the understanding of why audits should be conducted and the uses to which they can be applied by local church officials.

3 local church Audit Guide Page 2 of 26 Reviewed 08/2014 2 Index What Is an Audit ? .. 3 Who should be on the Audit Committee? .. 5 What is the Role of the Audit Committee? .. 6 The Committee s Objectives .. 8 Cash Receipts and Cash Balances .. 10 Suggested Audit Program .. 13 Cash Receipts & Balances .. 13 Cash Payments .. 14 Suggested Audit Program - Cash Payments .. 15 Payroll .. 16 Suggested Audit Program Payroll .. 16 Investments .. 17 Suggested Audit Program - Investments .. 17 Property, Insurance & Miscellaneous Items.

4 18 Suggested Audit Program Property, Insurance & Miscellaneous .. 19 Accounting Practices & Procedures .. 20 local church Audit Guide Page 3 of 26 Reviewed 08/2014 3 What Is an Audit ? The word Audit is derived from a Latin word meaning to hear. It is the auditor s job to hear and judge the accuracy of various kinds of testimony or evidence. In the modern context, the auditor is usually faced with written testimony, often in the form of financial reports or schedules. The objective of the Audit then becomes an assessment of, and an expression of opinion on, the accuracy and fairness of the information presented in those reports or schedules.

5 There are different kinds of audits available to Churches and other organizations. The most formal and structured type is an independent Audit of financial statements performed by a Chartered Accountant (CA). These audits are conducted according to uniform national standards and result in an objective opinion on the fairness of the organization s financial statements. Chartered Accountants and other certified accounting professionals can also conduct a review which does not adhere to the same standards as a formal Audit and thus is of minimal benefit.

6 local Churches incorporated under the Canada Not-For-Profit Corporations Act (CNCA) are required to have an independent external Audit . The level of financial review requirements depend on whether the incorporated church is a soliciting or non-soliciting corporation as per the chart listed below. Level of Financial Review Type of Corporation Gross Annual Revenues Appointment of Public Accountant (PA) Review Engagement or Audit Soliciting $50,000 or less Members must appoint a PA by ordinary resolution at each annual meeting.

7 Exception Members may waive appointment by annual unanimous resolution. PA must conduct review engagement, but members may pass an ordinary resolution to require an Audit instead. (If no PA is appointed, then compilation only.) More than $50,000 and up to $250,000 Members must appoint a PA by ordinary resolution at each annual meeting PA must conduct an Audit , but members can pass a special resolution to require a review engagement instead. More than $250,000 Members must appoint a PA by ordinary resolution at each annual meeting PA must conduct an Audit .

8 Non-S oliciting $1 million or less Members must appoint a PA by ordinary resolution at each annual meeting. Exception Members may waive appointment by annual unanimous resolution. PA must conduct review engagement, but members may pass an ordinary resolution to require an Audit instead. (If no PA is appointed, then compilation only.) More than $1 million Members must appoint a PA by ordinary resolution at each annual meeting. PA must conduct an Audit . local church Audit Guide Page 4 of 26 Reviewed 08/2014 4 Lastly, there is the Internal Audit , conducted by members of the congregation and may have different, possibly broader, objectives than an independent Audit .

9 It is this type of Audit , which is the subject of this Guide . For the purposes of this Guide then, here is our practical, working definition of an Internal Audit f or t he local church : A local church Audit is an Internal independent (from those responsible for the financial records) evaluation of the financial reports and records and the Internal controls of the local chur ch by a qualified person or persons for the purpose of reasonably verifying the reliability of financial reporting, determining whether assets are being safeguarded, and whether church policies and procedures are being followed.

10 local church Audit Guide Page 5 of 26 Reviewed 08/2014 5 Who should be on the Audit Committee? Audits can be performed by anyone, but certain types of audits require certain characteristics and qualifications. Audits of financial reports require that the individuals performing the Audit have a reasonable familiarity with the terms, concepts, and practices of the financial world. It is presumptuous of anyone to publicly express an opinion on the accuracy of something that they themselves do not understand. Accordingly, appointments to the Audit Committee should be made with this in mind.