NGO auditing: not to be underestimated and requires specific skills

GETTING SPECIFIC

Nico Esterhuizen, the CFO of JAM International, says non-profit accounting holds subtle but important differences from its commercial counterpart.

“Joint Aid Management (JAM) International is an African humanitarian aid and development group of organisations that works across the continent, with various different programming efforts, and we are supported by fundraising offices in eight countries, mainly in the northern hemisphere, opening one or two more in the near future,” explains Nico Esterhuizen, CFO of the organisation, and chairperson of the Association of Chartered Certified Accountants (ACCA) South Africa. “Each one is a separate legal entity because, unlike commercial businesses, we can’t hold shares, and there are more entities that you might want to have in a similar sized commercial business. And many of them have their own accounting standards and auditing requirements.” For example, the JAM International office in the USA must comply with US Generally Accepted Accounting Principles (GAAP), and any other NGO accounting standard that might be required by the state of Washington. Each office is required to meet additional tax and compliance requirements. “For example, in South Africa, our local entity is subject to the Companies Act, and needs to meet various SARS requirements to be able to maintain its Public Benefit Organisation (PBO) status (to issue Section 18A certificates for tax deductions to donors),” Nico explains. This level of complexity affects how multinational charities structure their operations. For example, JAM International has set up its primary office in Mauritius. “Foreign exchange is not controlled as tightly as in South Africa, so it’s much easier for me to send dollars to our programmes in South Sudan than it would be through the SARB,” Nico says. Some countries have specific NGO accounting standards that must be met. In other countries, JAM International complies with International Financial Reporting Standards (IFRS). Nico notes that these are commercially focused standards. “As NPOs, however, our income statements for reporting purposes would be quite different from our statements that we would use for management accounting,” he says. JAM International spends time communicating and explaining these differences to its stakeholders to ensure the reporting is understood in its context. Nico adds that large donor partners, such as the UN agencies, have their own reporting and auditing requirements too. “For example, in Uganda we work in refugee camps, and a contract with a UN agency, such as the Food and Agriculture Organization (FAO), will mean for the contract alone, a registered external auditor in Uganda will be appointed to audit the project, adding more auditing time to the organisation,” he says. To try to simplify matters, JAM International works with an audit firm with global presence – Grant Thornton (in South Africa known as SNG Grant Thornton). “That helps us to gain efficiency and reduce some of the time spent auditing,” Nico says. Grant Thornton’s offices have NGO divisions, and Nico says this is helpful, as income may look different for NGOs (for example, goods in kind). Having non-profit experience is helpful in understanding the business model and the type of transactions that take place. Nico says that it’s important for the auditors to understand things like the finance, insurance and deal structures peculiar to non-profits, which involve a degree of complexity. “NPO accounting is not just money in and money out,” he says. “Goods in kind can easily make up 50 percent of income. You need to understand what you’re reading – that it’s not necessarily accrual accounting. It might be a mix of accrual and receipt – or ‘service-based’ accounting.”

Mapping the future of NGO auditing

He believes that 4IR offers both opportunities and challenges for the NGO sector, as for all other sectors. “It gives us the opportunity to reach more people at a lower cost through the use of technology,” he says. “But technology also opens up new risks, which external auditors will need to assess. And they’ll need the skills to do that.”

SNG Grant Thornton is already undertaking IT application and general control audits for JAM International, as Nico believes the NGO is moving towards being more of a technology-driven business, not only in its back-office processes, but also with regards to programming.

“Technology also opens up new risks, which external auditors will need to assess. And they’ll need the skills to do that.”

This can be challenging in areas with limited access to connectivity, which is why JAM International is investing significant capital into satellite and mobile technology.

The value of ACCA

Nico, as an ACCA qualified fellow chartered certified accountant and chairperson of ACCA in South Africa, says he finds great value in his association with the organisation, particularly in terms of research. “ACCA is the world's largest professional accountant body, and has tons of valuable research available to members that we can pull from,” he says. “That adds real value for me, as I’ve been able to use this research for my own decision-making in the business.” ACCA’s global presence and structured continuous learning approach means that hiring an ACCA qualified accountant ensures consistency, Nico says. “Consistency in itself leads to better results. And then there’s the value I find in the preparation ACCA is doing for the future. For example, what happens if blockchain becomes the norm? How do we prepare for that? ACCA makes a point of keeping us abreast of what’s happening and how to prepare through continuous learning and research.” Nico says ACCA also opens up additional routes into the profession for people who might not be able to pursue the traditional path through a university degree. “Many people don’t have the option of a university degree purely due to logistical issues,” he says. “ACCA allows you to become a world-class professional accountant in a different kind of setup, getting the same kind of knowledge, and the same standards, but in a different format. It is one of the main benefits that it brings to South Africa, which I hope more people will embrace and make use of.” l