A.  Purpose 

1.      The audit is performed primarily for the Board of Directors.  In arranging for the audit and receiving the auditor’s report, the Board of Directors is exercising its primary responsibility for assuring the fiscal integrity of the organization.  The Board of Directors and staff should use the audited statements as a management tool to review the financial position and activity of the corporation.  The audit opinion and report on internal control (which is called the management letter) provide the Board of Directors with an outside, independent evaluation of the adequacy of NUIHC’s accounting policies, financial records and system of internal control for safeguarding NUIHC’s assets and producing proper financial reports.  The Board of Directors and staff should use these reports to correct any weaknesses noted by auditors in these areas. 

2.      Secondarily, the audit is performed to meet the requirements of outside agencies, including funding sources, which have a fiscal or legal interest in NUIHC.  

3.      Lastly, it should be noted that the purpose of an independent audit is not to detect or uncover fraud, although the auditors have a responsibility to disclose any fraud, which comes to their attention as part of their audit activities. 

B. The Scope of the Audit 

The scope of the audit should indicate the period covered and that the examination is made in accordance with generally accepted auditing standards, including those specified by the United States General Accounting Office and other program specific guidance. 

C.  Audit Engagement 

If the Board of Directors makes the determination that NUIHC should put out for an audit bid, the following are recommending procedures that should be followed.  The two key components of engaging an audit firm are the selection of an auditor and the engagement letter.  The selection process should begin well in advance of the close of an audit period. Whenever possible, the selection process should provide for the solicitation of proposals or bids from several audit firms.  The following are suggested steps to follow in selecting an auditor. 

1.      If at all possible, interview more than one firm practicing in the area, including small firms, large firms, local firms, national firms, etc.  Explain the required scope of the audit and the audit period.  Provide the auditor with sufficient information to understand what is required. 

2.   Request a written proposal or bid from each firm.  This should include the following: 

a.       A statement of the qualifications of the firm: 

b.      A statement of the firm’s experience, especially experience in auditing non-profit institutions and/or health care organizations; 

c.       A statement of the scope of audit, which shows the firm understands what is required; 

d.      Identification, copies of the résumés, of staff who will perform the audit; 

e.       The price for performing the audit and the basis for arriving at the price. 

3.       Evaluate each firm’s proposal with regard to each of the points listed above.

Client references should be contacted for each firm.  The Board of Directors should approve final selection of an auditor. 

The engagement letter is the formal contract between the auditor and NUIHC.  It should be developed by the auditor and signed and retained by both parties prior to the commencement of any audit work.  The engagement letter should be signed for each audit performed, regardless of whether the same firm performed the previous audit. 

D. Staff Preparation for the Audit 

The fee for an audit is based upon the amount of time required by the auditor to complete his/her examination of the financial statements.  The auditor’s time and effort can be reduced by appropriate NUIHC staff preparation for the audit.  Such preparation should include: 

 1.  Compiling all requested documentation as early as possible for review by the auditors;

 2.  Arranging sufficient workspace, which is convenient to records and files and the  Personnel responsible for the files; 

  3. Introducing audit staff to appropriate employees of the organization;

 4.  Ensuring that key staff will be present during the field work; and 

5.      Assisting auditors in the preparation of work papers where appropriate. 

E.  Financial Statement Format 

The basic financial statements, which are examined in an audit, are the Statement of Activities and the Statement of Changes in Fund Balance. 

It is the responsibility of the NUIHC staff to determine the format of the financial statements.  However, they may wish to consult with the auditor to develop a format, which satisfies both internal and external reporting needs with a minimum of effort (see Section III). 

F.  Auditor’s Opinion 

The auditor’s report is the mechanism through which the auditor expresses an opinion or, if circumstances require, disclaims an opinion on the fairness presented in the financial statements relating to NUIHC’s present financial position, results of operation, and changes in financial position, in conformity with generally accepted accounting principles and the specific accounting principles applicable to the program. 

Although certain circumstances may result in a departure from the standard report, the opinion format is normally classified according to one of the following four types. 

1.      An unqualified opinion states that financial statements present fairly the financial position, results of operations and changes in financial position. 

2.      A Qualified Opinion states the “except for” or “subject to” certain items, which are referenced and explained in a separate paragraph, the financial statements present fairly the financial position, results of operations and changes in financial position. 

3.      A Disclaimer of Opinion states that the auditor does not express an opinion regarding the fair presentation of the financial statements and explains, in a separate paragraph (s), all the substantive reasons for the disclaimer and any other reservations the auditor may have regarding the financial statements. 

4.      An Adverse Opinion states that the financial position, results of operations and changes in financial position. 

G.  Management Letter 

The management letter describes in reasonable detail the objectives and limitations of internal control and the auditor’s evaluation, followed by appropriate descriptions of material weaknesses.  The descriptions should indicate whether the weaknesses relate to procedures or to compliance with those procedures, and may also include recommendations for improvements, comments concerning corrective action taken or in process, or other comments appropriate in the circumstances. 

H.   Distribution of the Audit Report and Management Letter 

The audit is performed primarily for the Board of Directors; therefore, the auditors should formally present the audit report and management letter to the Board of Directors or a formally designated committee of the Board of Directors, such as the finance committee.  Sufficient time should be allowed for the auditor to clarify any items on the financial statements, explain all comments and recommended actions, and respond to any questions from Board of Directors and staff members. 

Distributions is as follows: 

1.      Board of Directors 

2.      Other agencies as required 

3.      Staff