1. The adequacy of the design of internal controls and other key financial and operating policies and procedures

2. Compliance with, and operating effectiveness of, internal controls and other financial and operating policies and procedures

Unlike a financial statement audit performed by independent external auditors, which provides only a high-level consideration of internal controls as an element of audit planning, an internal audit function focuses on the details of an organization's policies and procedures with an objective of preventing and detecting:

1. Weaknesses in the design or operation of policies and procedures

2. Noncompliance with policies and procedures

3. Inefficiencies in operations

4. Occupational fraud and abuse

With respect to fraud, the value of having an internal audit function cannot be over-stated. The Association of Certified Fraud Examiners 2004 Report to the Nation on Occupational Fraud and Abuse found that the median loss when fraud took place in an organization without an internal audit function was $130,000. That median loss dropped to $80,000 when an internal audit function was in place! Why? Because the frauds are detected much sooner when an internal audit function is in place. Early detection also improves an organization's chances of recovery of lost funds.

As further evidence of the value of an internal audit function, that same 2004 study reported that internal audit as the second most likely method of detecting fraud (behind tips from employees, vendors, and customers). The study found that internal audits are more likely than an organization's internal controls, and much more likely than the external audit, to result in detection of fraud.

However, the sad truth is that in the nonprofit sector, internal audit was only the fifth likely method of fraud detection, behind external audits and internal controls, even behind "accidental" discovery of fraud. Why is this? Simple — far too many nonprofit organizations have no internal audit function whatsoever!

One of the reasons for the lack of internal audit functions in many nonprofits is no doubt budgetary. Many organizations simply cannot afford a full-time internal audit staff. But by outsourcing your internal audit function to Zack Accounting & Consulting, P.C., your organization can save money and gain access to experienced auditors who know the nonprofit sector.

A variety of techniques are used in our internal audit work, from analysis of documents and testing of transactions, to staff interviews and electronic data extraction and analysis utilizing sophisticated software.

The frequency and depth of our internal audit services is customized to your organization's needs and budgetary constraints, to focus on the most important areas and provide you with the most effective and efficient use of the funds you budget for this critical service. In some cases, our work is done on a monthly or quarterly basis, in others it is less frequent.

In all cases, however, our internal audit work conforms to the following guidelines:

1. We develop a customized internal audit plan that is based on a risk assessment that considers your organization's unique operations.

2. We review the audit plan and obtain the approval of your audit committee or board of directors prior to performing the work.

3. Our reporting responsibilities are to the audit committee or board of directors, not to the chief financial officer.

4. A formal written report describing our procedures and the results of those procedures is prepared and discussed with the audit committee or board of directors.

For more information about how we can implement or improve an internal audit function in your organization, please call Gerry Zack at (301) 987-0287 or click here to send Mr. Zack an e-mail.