The AUASB withdrew the Guidance Statement (GS019) Auditing Fundraising Revenue of Not-for-Profit Entities in March 2023, sighting that it was no longer fit for purpose in the current NFP environment. It has been replaced with an AUASB Bulletin Auditing Fundraising Revenue of Not-for-Profit Entities in a Digital Age to update and replace the content in GS019. You can find the Bulletin here.
Following the withdrawal of GS019, we reflected on the statement’s positive impact on clients and the enhancements to their internal controls.
Before the statement’s release, it was largely acceptable to issue a qualified audit report over the completeness of a NFP entity’s revenue (an inherent risk in a donation and fundraising-driven environment whereby all income may not be banked intact). Whilst the statement was written primarily for external auditors, to avoid a qualified audit report, many clients implemented additional controls or improved their documentation of those controls so that they were auditable, and hence avoid the qualification. They used GS019 as the framework to make those changes.
At Prosperity, we have compiled a short (but important) list of the top five internal controls that all NFP entities should have to reduce risk and improve the performance of their donation and fundraising functions.
1. Segregation of Duties
One of the most critical internal controls that NFPs should implement is segregating duties to the maximum extent practical. This control involves dividing tasks and responsibilities among different individuals to prevent any one person from having too much control over a particular process. In a fundraising environment, this means separating responsibilities for collecting donations, recording them, and depositing them in the bank. By doing so, NFPs can ensure that no one person has complete control over the entire process, reducing the risk of fraud or error.
2. Donor Acknowledgement Procedures
Another essential internal control for NFPs seeking donations is establishing robust donor acknowledgement procedures. These procedures should outline the steps for acknowledging and recording donations, including how to issue receipts and ensure that donations are properly recorded in the organisation’s books. By doing so, NFPs can demonstrate to donors that their contributions are being properly accounted for and can provide assurance that the organisation is fulfilling its fiduciary responsibilities.
3. Gift Acceptance Policies
NFPs should also establish gift acceptance policies that outline the criteria for accepting donations, including any restrictions or conditions attached to them. These policies can help ensure that the organisation only accepts gifts that align with its mission and values and can help prevent any potential conflicts of interest. Additionally, these policies can help ensure that the organisation complies with relevant laws and regulations, including tax-exempt status.
4. Board Oversight
Effective board oversight is critical for NFPs seeking donations and fundraising income. Board members should be actively engaged in the organisation’s fundraising efforts and should regularly review the organisation’s financial statements and fundraising activities. By doing so, they can provide oversight and ensure that the organisation is operating within its means and fulfilling its obligations to donors and stakeholders.
5. Regular Reporting and Monitoring
Finally, NFPs should establish regular reporting and monitoring processes to track and report on their fundraising activities, including regular financial reporting to the board, reconciliation of donations received and deposited, and periodic review of the organisation’s fundraising goals and progress. By doing so, NFPs can ensure that they are meeting their financial goals and can quickly identify and address any issues or discrepancies that arise.
NFPs seeking donations and fundraising income must implement robust internal controls to ensure transparency, accountability, and compliance. By following the five internal controls outlined in this article, NFPs can reduce risk, improve performance, and maintain the trust of their donors and stakeholders.
If you have any questions regarding the above, including how to implement these internal controls and reduce risk, contact Director of Corporate Assurance Alex Hardy at ahardy@prosperity.com.au.