If you are on the Board of a Not-for-Profit organisation, you may be concerned about your obligations and personal liabilities as a board member. The organisation’s Chief Executive Officer (CEO) gives you updates about its operations but the Board has not been able to gauge how the systems and processes are working within the organisation. Sure, the Board was involved in the approval of written policies and procedures for the different aspects of the organisation, but now that the systems have been in place for a while, how are the processes faring? Are the policies and procedures followed? Your concerns are justified when the CEO presents the Board with a formal complaint from an employee regarding the potential underpayment of wages.
With an employee raising the alarm around payroll, the first step would be for the Board to understand the situation and determine whether a professional payroll consultant is required to review the allegation. However, for the Board to ensure good governance is in place, an internal audit should be conducted to assess the organisation’s systems and processes. Whether the Board decides to set up a separate committee to conduct the internal audit or engage auditors to provide the service, there are a few advantages that should convince the Board to perform internal audits on a regular basis.
Untainted view of the organisation
With the Board focused on the strategic direction and financial position of the organisation, the execution of policy and procedure developed are often left to the CEO and managers. The Board would heavily rely on the CEO to bring any issues to the Board for consideration. However, as the CEO is part of the operations and has their performance reviewed by the Board, there is less incentive for them to report on operational issues. Issues brought to the Board could be deemed by the CEO to be a poor reflection on their performance. As such, having an internal audit performed by an external party, separate from the organisation’s operations, can provide the Board with a much-needed perspective on how the systems and processes are carried out within the organisation.
Bottom-up understanding of the organisation
An internal audit usually involves getting an understanding from employees of all the businesses systems and processes and how they are executed. Where the internal audit is conducted by an independent party trusted by employees, employees are able, to be frank, and candid in providing their thoughts. The feedback received from employees provides invaluable insight into the daily operations of the organisation and the employees’ perspectives. Ensuring that the internal auditor has the required expertise will also provide the Board with the assurance that information obtained from the internal audit is accurate and comprehensive.
Opportunity to tweak and improve
The results gathered from the internal audit, along with suggestions from the internal auditor provide the Board with an opportunity to improve on current policies and procedures. It is important to note that “best practice” measures are not always the best measures to be adopted by the organisation. A fine balance between cost and practicality has to be found in order to achieve the desired outcome of ensuring good governance. The Board will ultimately have to consider the potential risks the organisation is exposed to, the consequences of risk and the level of risk the Board is willing to accept.
The responsibility of board members in an NFP organisation should never be underestimated. It is usually unpaid and requires good problem-solving skills to ensure the organisation is in a healthy financial position and well placed to carry out its purposes. Incorporating internal audits as part of the Board’s governance measures provides the Board with a handle on the organisation’s operations. There will always be a level of risk that the Board is exposed to when it comes to responsibility for the governance of an organisation. The question becomes, has the Board done what it can to reduce those risks?
Do you need further information about internal audits in your business? Get in contact with your local Accru Office today.