Conducting an Audit

Auditing involves examining financial records and transactions to ensure that receipts have been properly accounted for and expenditures have been properly authorized and recorded, in conformity with PTA bylaws, standing rules and budget limitations.

Your PTA’s bylaws should indicate who, when and how an audit is to be conducted and reported to the membership. Financial records should be audited at least once a year – some state PTAs require two or more audits annually. Books should also be audited if a financial officer resigns (see Final Steps before Leaving Office Checklist), before the new officer assumes his or her duties, and at any other time deemed necessary.

You have several options for how to complete an examination of the financial statements and records. The first option is the least expensive:

  • Internal financial review is conducted by an internal committee. This committee should not include anyone with signature authority over the PTA’s bank account or any relatives to a person with signature authority. The committee periodically reviews all of the Treasurer’s records for errors. Check with your state PTA to determine if they offer support for internal financial reviews.

The remaining three options require retaining a professional firm with nonprofit accounting experience. Laws in several states require 501(c)(3) organizations to hire a professional firm to complete the audit when gross income exceeds a certain amount. Be sure to check the laws in your state or talk with your state PTA about your unique circumstances. You will hire a firm to:

  • Compile financial statements. The CPA receives financial information from the client, reviews it for obvious errors without verifying the facts or tracing the transactions, and prepares financial statements using the information provided. Upon completion, a report is issued that states a compilation was performed in accordance with professional standards, but no assurance is expressed on the statements.
  • Review financial statements. The CPA performs inquiry and analytical procedures in addition to the procedures described above for a compilation. Upon completion, a report is issued stating that a review has been performed in accordance with professional standards, that the review conducted was less rigorous in scope than an audit, and that the CPA did not become aware of any material modifications that should be made in order for the statements to be in conformity with generally accepted accounting principles.
  • Audit financial statements. This would be most appropriate for state PTAs, very large PTAs or PTAs that are required to obtain external audits due to requirements from grantors. In an audit, the CPA performs all of the steps indicated above, as well as additional confirmation, verification and substantiation procedures. When the audit is complete, the CPA expresses an opinion that the financial statements present fairly the entity’s financial position and results of operations. This would be considered a “clean” opinion.