A rapid shift to auditing remotely was especially challenging for CPAs who audited not-for-profit entities. Those NFPs might not have had top-of-the-line technology when the COVID-19 pandemic changed so much about the world two years ago, including the ability of auditors to visit client sites.
To learn more about the state of remote auditing of NFPs, hear insight from accounting firm principals Kelly Rancourt, CPA, and Deetra Watson, CPA, CGMA. Rancourt works for Clark Nuber, a firm in the Seattle area, and Watson is employed by the North Carolina firm Blackman & Sloop.
Here is a list of resources from the AICPA's Not-for-Profit Section that were mentioned in the podcast:
Also, it has been a busy news week. Get caught up on the following topics:
- IRS auto depreciation limits have risen sharply.
- The SEC is going to discuss a proposal that would standardize and improve climate change disclosures for investors.
- The U.S. Small Business Administration said Economic Injury Disaster Loan (EIDL) payments don't have to begin until 30 months after the loan was made.
- CPAs can play a role for clients amid the crisis in Ukraine.
- A CPA has advice for grappling with Schedules K-2 and K-3.
What you'll learn from this episode:
- An overview of the current landscape of auditing not-for-profit clients.
- Some of the main obstacles not-for-profits faced when forced to have their audits done remotely.
- The benefits of remote audits, according to Rancourt and Watson.
- Some of the new questions and topics that have been unearthed by remote auditing.
- A summary of news related to the IRS, SEC, EIDL repayment, and more.
Play the episode below or read the edited transcript:
— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.
Transcript:
Neil Amato: Coming up on this episode of the Journal of Accountancy podcast. First, we have insight from two CPAs related to audits for not-for-profits. Then we have coverage of several accounting-centric topics, including tax filing season. You can hear all of that after this word from our sponsor.
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Amato: Welcome back to the Journal of Accountancy podcast. This is your host, Neil Amato. I'm joined by CPAs Deetra Watson and Kelly Rancourt to discuss the topic of remote audits for not-for-profits, now and in the future.
First, we know that all auditors have faced challenges related to remote auditing, but what are some of the not-for-profit-specific challenges maybe that you've seen, and how have audits addressed these potential risks? Kelly, I guess you first.
Kelly Rancourt: I think one the challenges for not-for-profits switching to remote and remote audits, one of the biggest challenges they face, has really been going into an electronic environment quickly. A lot of not-for-profits traditionally have been more paper-based, and so they've had to switch to electronic a lot quicker and there are sometimes gaps that end up happening in internal controls when you end up making a big switch.
The past couple of years, I think a lot of organizations have been doing what they need to do to work in the remote environment, and we're now seeing a bigger focus on, "OK, how do we need to improve our internal controls to address that?"
From an audit side, we are looking at internal controls, and we're trying to understand what internal controls are in place. Are there any gaps that we need to consider when we're doing our audits? Can we even rely on controls if there are those gaps?
Deetra Watson: Yes, Kelly, I think that you're right on there. I think another thing that we've seen, especially with the nonprofits, through this time period with remote auditing, is that the pandemic has caused what we've all experienced, is the Great Resignation, and so this really has seemed to impact our nonprofits who are already stretched with resources.
Now, we've talked about their internal controls. You have your finance personnel that are wearing multiple hats. This does have an impact with their internal controls and just their ability to do their day-to-day functions at the level that they would normally do in the past.
That has caused some things in the audit of us having to look at things a little bit differently and potentially even change how we are actually auditing some of the areas that we are looking at for our nonprofits.
Amato: Are there aspects of remote auditing of NFPs in particular that you think are problematic?
Watson: I think just in general, typically when you're looking at your nonprofits, you're thinking of your contributions, you're thinking of their fundraising events and how to audit those. And some of the challenges that nonprofits have had with that is that a lot of them at this point have had to cut back on some of that, especially fundraising.
One thing that we notice is that trying to do that transition of doing things more remotely, they have relied more on third parties to conduct these events. That has actually helped us on the audit side because now we're having a third-party source to be able to help test some of those areas.
So even though it has caused some challenges with nonprofits and they are working around that, it has actually helped us on the audit side on being able to look at some of those areas.
Rancourt: Yeah, I would say a lot of my not-for-profits tended to be a lot more paper-based. This really did cause them to jump almost five, 10 years into the future, where they're having to adopt electronic methodologies for everything, electronic signatures, they're having to adopt electronic bill pay, that kind of stuff.
It is nice for the audit because I think there are added controls when you start getting into the electronic environment, but it was a struggle for a lot of not-for-profits to shift that quickly and making sure they do have all their coverage.
One thing I did note early on is a lot of clients switched to just email approvals for different items, and when we've got cybersecurity issues going on and emails are so easy to hack and then utilize for cyberattacks and approvals of false payments, I always caution organizations when they only rely on those email approvals right now.
Amato: What about the benefits? Have you seen any of those in the remote audit environment?
Watson: Yes. I've definitely seen some benefit, especially with some of our nonprofits, in that they don't have the space a lot of time for the audit team to come in. They are now going to where they're reducing their footprint. They're reducing their lease costs. That is benefiting them. It's allowing us to still conduct the audit efficiently and effectively without the nonprofit incurring that extra expense to pay for rent for office space or that kind of thing.
That has definitely been a benefit that we've seen with remote auditing.
Rancourt: Yeah, I've seen a general increase in employee efficiency, effectiveness, and just general satisfaction. Not having to travel to an audit site for the audit team has been huge, being able to work from home.
A majority of my clients, their finance department is working remotely, and so they're very much enjoying being able to work remotely.
They also love the fact that the audit is very structured in when the auditors are going to be asking them questions. We have to set up meetings with them. We have to set up times to do screen shares. They feel like it's more controlled so they aren't spending the whole audit week, audit month, whatever it is, answering auditors' questions.
They can still do their day-to-day job and then have a very structured time where they're meeting with the auditors. I've seen a lot of organizations really enjoy the remote audit environment.
Amato: We've talked about the challenges, we've talked about some of the benefits. Looking ahead, what do you see as the future for remote auditing, especially as it relates to not-for-profits?
Rancourt: I think it's here to stay. I definitely think the remote world is something that has been a huge benefit for a lot of people, a lot of increased job satisfaction and just being able to work from home, and so I think remote audits are going to be here to stay.
I think the client that wants auditors in the field is going to be rare and not the norm. I think most will like the audit to be conducted remotely. Honestly, it just increases our ability to hire people from different areas and expands the pool of potential candidates that can work on these audits because we're not limited by who lives in the area that then can go physically to the audit.
We can really expand our scope in talent that we can hire, and so I think that's a huge benefit that's going to cause remote audits to just continue in the future.
Watson: I completely agree with you, Kelly. I do think that remote auditing is here to stay. I think for accounting firms as well as nonprofit organizations, this is really a time to just embrace the technology and embrace the change.
There's so many different things that we can do now and be more efficient and effective with our audits, just with the technology. I think that the firms that do not embrace it, as well as the nonprofit organizations that don't embrace it, will eventually get left behind, and so this is a great time.
Kelly, as you mentioned before, it kind of forced nonprofits to jump ahead by five or 10 years down the road. It has forced all of us to do that and so I don't see us ever going back just to your traditional audit, 100%. I think it's definitely here to stay.
Amato: Kelly, Deetra, this has been a great conversation. Is there anything you'd like to add in closing, any resources, or any other thoughts you'd like to share?
Watson: I would definitely say just for the auditors, like I just said, you have to embrace the technology and for those firms just to really understand what the nonprofit clients are needing at this time and our role now has changed a little bit.
Yes, we've always been that adviser, but they're going to be looking to us and asking more questions about cybersecurity and what are the things that they need to be doing to make sure that they're able to do their mission and do the things that they're supposed to be doing, but yet still are effective in protecting the assets of the organization.
Rancourt: I completely agree. I think there's going to be a huge shift to focusing on your internal controls.
Amato: Well, great. Well, we have successfully recorded, I believe, a bicoastal podcast. We have guests in Eastern Time and Pacific Time. Thank you, Deetra and Kelly for being on the show.
Rancourt: Thank you very much.
Watson: Thank you for having us.
Amato: Thanks again to Kelly Rancourt and Deetra Watson for being on the podcast. Those wanting to learn more about NFP-specific audit, internal control, and cybersecurity tools can go to the AICPA's Not-for-Profit Section resource library.
In other news, the Securities and Exchange Commission is preparing to discuss a staff proposal designed to improve and standardize the climate change disclosures that companies make for investors. SEC chairman Gary Gensler spoke of how investors "want to know how climate-related risks will affect the companies they own." That hearing is on Monday, March 21. Ken Tysiac has that article on journalofccountancy.com.
Also, the Russian invasion of Ukraine is thousands of miles away from the United States, but the uncertainty and economic stress caused by the war means that business leaders need trusted advice and calm counsel. That's where accountants can play a key role, and Jeff Drew of the Journal of Accountancy has more in his article, which we will link to in the show notes for this episode.
Finally, the Oversight Committee of the House of Representatives' Ways and Means Committee has a hearing with IRS Commissioner Charles Rettig on the current tax filing season. That hearing is happening at midday on Thursday, March 17, which is just before our episode publishes. The JofA's Paul Bonner is covering that hearing, and you can look for his coverage and other accounting news by visiting the journalofaccountancy.com home page.
Also, Paul has a podcast that posted Wednesday that features analysis from CPA John Samtoy about Schedules K-2 and K-3 and how CPAs can help clients with properly filing those forms.
And he has coverage of the IRS issuing its annual inflation-adjusted update of depreciation limits for passenger automobiles, including passenger vans and trucks, placed in service in 2022. As that limit is tied to inflation, well, you know it went up more than in past years. We will link to that article in the show notes.
And finally, the U.S. Small Business Administration has announced that small businesses and not-for-profits that received funding through the COVID-19 Economic Injury Disaster Loan, or EIDL loan program, won't have to begin payments on the loan until 30 months after the loan was made. That's according to an SBA announcement. Jeff Drew has that article, which we will link to in the show notes.
If you haven't already, please subscribe to the Journal of Accountancy podcast, rate it, review it, and share it with other podcast listeners. Thank you for listening.