| Doing
the Right Thing
The
recent occurrences within the Long Island school system
have been sad to watch. In the wake of reports of improper
spending, and possibly corruption, two large, wealthy school
districts will undergo in-depth audits, and New York State
Comptroller Alan Hevesi plans audits of 21 other local school
districts.
Most
of the recent accounting scandals have focused on public
companies, but accountability in the government and nonprofit
sectors is even more important, because they touch everyone,
not only investors. Governments and nonprofits are funded
by taxes and charitable giving, respectively, and the trust
of those taxpayers and donors is paramount. School districts,
for example, are entrusted with spending public money for
the educational welfare of children.
Financial
and Performance Audits
The
CPA profession should take the lead in making sure that
a nonprofit or government entity’s finances are tied
to activities that accomplish its mission. Audits must be
more than just technically sound. We should strive for audits
that focus not only on whether the organization is Doing
Things Right—accounting properly for its income and
expenses—but also on whether it is Doing the Right
Thing—accomplishing its stated mission, and not misusing
its funding.
There
is a fundamental difference between the auditing standards
needed in the for-profit sector and in the government and
nonprofit sectors. The for-profit sector exists to create
profits, while the government and nonprofit sectors exist
to serve the public. Most nonprofits and all government
agencies that accept federal government money are required
to have their audits performed in accordance with Government
Auditing Standards, the “Yellow Book,”
which apply to both mandatory financial audits and to voluntary
audit services that are subject to standards for performance
audits. The Yellow Book standards could be adopted for all
New York State nonprofits and government entities regardless
of whether they receive federal funding. The Yellow Book
standards are overseen by the GAO; the New York State Comptroller
would oversee their application to state government agencies.
Mixed
Messages
Unfortunately,
one obstacle on this road will be acknowledging that a current
public perception about audits of nonprofits and government
entities—that financial statement audits already determine
whether expenditures are in line with budgets and missions—is
incorrect. The perception that auditors ensure that nonprofits
and governments are Doing the Right Thing is similar to
the mistaken public perception that auditors of public companies
look for fraud.
Although
requiring both financial and compliance audits in the nonprofit
and government sectors would raise costs, the long-term
benefits to the public would more than justify the expense.
We must also think of what message we’re sending to
our public school students. This is worth remembering whenever
people talk about whether children should be taught about
morals and ethics at school or in the home. Doing the right
thing is more important than maintaining an appearance of
doing things right.
Louis
Grumet
Publisher, The CPA Journal
Executive Director, NYSSCPA
lgrumet@nysscpa.org
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