Part 1 – GOVERNANCE

SECTION: Financial administration

POL 1-022 Pr

Internal audit

Effective date: July 1, 2009

Approval date: May 3, 2009

Last revised: May 3, 2009

Cancelled date:

Reference: Bylaw IV, Sec.5(c),

BD 03/1998, 04/2003

Cross reference:

PROCEDURES

The Board of Directors delegates oversight of the auditing process to the Association Treasurer who will be assisted by the Director of Finance.  The Committee that oversees financial planning and auditing may create a task force to assist in the auditing process.

1.                The Treasurer oversees the audit program, serving as the Association’s primary coordinator for all audits.

(a)              While conducting audits, the Treasurer is periodically authorized to have full, free, and unrestricted access to all Association functions, records, property and personnel related to the scope of the assignment.

(b)             The Treasurer has no direct authority to undertake additional audits or act on audit recommendations without the express approval of the Board of Directors.

2.                The purpose of the audit is to safeguard Association financial, physical and human resources, and to promote efficient and effective resource use.

(a)              Financial audits are conducted annually and are always conducted by an independent accounting firm, retained directly by the Board of Directors.  The Treasurer works with the Director of Finance to coordinate the audit and to receive the auditor’s final report for distribution.

(b)             Internal audits are conducted by an independent outside firm.

(c)              The Treasurer or the Committee that oversees Association finances may call for an independent third party audit at any time with concurrence of a majority of a quorum of the Board of Directors.

(d)             Additional audits many be requested, at any time, through either the President or the Executive Director. 

3.                An independent auditor will monitor the integrity of the financial reporting processes, evaluate the systems of internal controls and validate the integrity of the financial statements.

(a)              No independent auditing firm may conduct an internal or financial audit of ARMA International if any current employee of ARMA International was employed by the independent auditor and participated in any capacity in an audit of ARMA International during the prior two fiscal years.

(b)             The lead auditor for any audit of ARMA International may not conduct more than five consecutive audits of ARMA International.

(c)              The Committee that oversees Association finances will approve in advance all non-audit services provided by the independent auditing firm(s) to ARMA International.

4.                Records Retention:  The auditor and ARMA International shall retain for a period of seven years after the audit or review of financial statements of ARMA International, all records relevant to the audit or review, including work papers and other documents that form the basis of the audit or review, and memoranda, correspondence, communications, other documents and records (including electronic records), which:

(a)              are created, sent or received in connection with the audit or review, and which

(b)             contain conclusions, opinions, analyses, or financial data related to the audit or review.

For the purposes of this policy, ‘work paper’ means documentation of auditing or review procedures applied, evidence obtained, and conclusions reached by the auditor in the audit or review engagement.

Memoranda, correspondence, communications, other documents and records (including electronic records) described above will be retained whether they support the auditor’s final conclusions regarding the audit or review, or contain information or data, relating to a significant matter, that is inconsistent with the auditor’s final conclusions regarding that matter or the audit or review.  Significance of a matter shall be determined based on an objective analysis of the facts and circumstance.  Such documents and records include, but are not limited to, those documenting a consultation on or resolution of differences in professional judgment.

5.                ARMA Headquarters is responsible for:

(a)              Establishing systems and procedures designed to ensure compliance with policies, plans, laws and regulations.  The internal audit process determines whether the systems are adequate and effective, and whether the activities audited are complying with the appropriate requirements.

(b)             Setting operational standards to measure an activity’s economical and efficient use of resources.  The internal audit process determines whether operating standards have been developed, are understood and being met; ensuring that deviations from standards are identified, analyzed and communicated to those responsible for corrective action and identifying that corrective action has taken place or that management of the Board of Directors has assumed the risk of not taking corrective action on reported findings.

(c)              Acquisition of assets and safeguarding them from various types of losses such as those resulting from theft, fire, improper or illegal activities, and exposure to the elements.  The internal audit process verifies the existence of assets and reviews the means used to safeguard those assets.

6.                The Executive Director is responsible for ensuring that appropriate action is taken within a reasonable time on the findings and recommendations of the audit reports where necessary.  Review of the disposition of the findings contained within the audit report is part of the executive management review process.

Financial audit process

1.            The Finance Department prepares financial statements, trial balance, and reports as of June 30, of the current fiscal year in preparation for the audit.

2.            Senior staff and auditors confer in a pre-audit meeting to discuss the scope of the audit and any new reporting or audit requirements.

3.            The auditing firm sends the Finance Department the planning list of documents and analysis that is needed for the pre-audit planning stage.

4.            Staff updates internal process worksheets provided by the auditor. (See Internal Control & Process/Procedure Testing below).

5.            The auditors complete their pre-audit review and/or testing.

6.            The auditors obtain explanations from management regarding areas that deviate significantly from the previous year’s performance.

7.            Per the auditors’ request, management provides full analysis and documentation (the “audit box”), which assists the auditors to validate the financials and perform various testing and analyticals.

8.            The auditors may request follow-up information or documents resulting from audit work performed.

9.            The auditors review the preliminary audit report with management and the Association’s Treasurer.

10.         The auditors present the final audit report and financial statements with footnotes to the task force for review.  The task force will provide the auditors with any questions or clarifications needed. 

11.         Upon approval of the documentation by the task force, the auditors will present the final report to the Board of Directors.

Internal control and process/procedure testing

In conjunction with the financial analyticals that are prepared for the audit, the auditors will present management with questions concerning the Association’s internal controls and policies/procedures. 

1.                The questions include:

(a)              How integrity within the Association is communicated and enforced.

(b)              How employees’ competence is assessed and supported.

(c)              Whether the mechanisms of communication between the staff and the Board of Directors are sufficient to demonstrate understanding, involvement and oversight of the Association.

(d)              How various accounts are reconciled and balanced for verification (validation).

(e)              Which non-system transactions are accounted for and how they are entered into the system for inclusion in the financial statements.

(f)               How significant accounting estimates are developed for inclusion in the financial reporting of the Association.

2.               The auditors will also request comprehensive detail about the initiation, recording, processing, and reporting of various Balance Sheet accounts and transaction types.

3.               While on site, the auditors will observe, test, and validate the responses to the questions above.

Search for audit firm

Subject to Board direction and approval, the following steps occur to select a new auditing firm.  The Committee that oversees financial planning and auditing may create a task force to manage the following tasks:

1.               The task force will ask Headquarters to develop a Request for Proposal (“RFP”).

2.               Headquarters will send the RFP to three auditing firms in the local area.

3.               Headquarters will review the results of the RFPs and present the task force with its findings. 

4.               The task force will select a lead candidate from the findings and present the candidate to the Board.

5.               Subject to Board approval, the task force will negotiate a contract with the new firm.