Question:

We’re a small membership based association. My Executive Committee just asked me to put out an RFP for an audit. They are perfectly happy with the firm we’ve been using, the pricing, etc. but they believe its best practice to do this every 3 years. My feeling is, if we’re happy with the firm, why do it? Or why make another firm respond if we’re just going through the motions? Plus, they’re going to make the current firm respond. What could I say to my Board?

Response:

This is an issue that many nonprofits deal with.  How do you balance the role of good governance with the underlying cost benefit?  Such an exercise should never be about “going through the motions”.  If an organization does go out to bid for any services, there should be a fair opportunity for firms bidding to win the work.  It takes a tremendous amount of time and effort by firms bidding to participate in the proposal process.  Procuring for the independent audit is one of the most important tasks that a board is delegated with.  Organizations look to the independent auditor as a sounding board and to provide assurance that management is fairly presenting information contained in the organization’s financial statements.  There should already be a process in place at an organization where the audit relationship is evaluated on an annual basis.  Such evaluation typically takes place during an annual planning meeting with the external auditor where the audit plan is presented to the board or a committee thereof and when the audit engagement letter is signed.  The current auditor should be continuously evaluated on whether they are proactively brings fresh ideas to the table, always available to the board and management to answer questions, shares industry best practices, etc..  When the organization hired the existing auditor and went through a thorough evaluation process, concluded that the pricing was reasonable and has given the auditor incremental price increases over the years, pricing should not be a significant metric.  There will always be someone out in the market place willing to perform the current work at a cheaper cost.  Some nonprofits gravitate towards the “low cost” provider model which can cause more harm in the long term if that service provider doesn’t possess the skill set to do a thorough job.  A viable alternative might be to request the current audit team rotate team members to bring a fresh perspective.

 

Amish Metha, CPA - Partner and Not-For-Profit Practice Leader, Friedman LLP

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