Auditing the Auditors

Published October 29, 2018

Over the past number of months, I have been working with several clients to realign their financial management systems, bring their daily financial management in-house, and conduct exhaustive reviews of their financial data.  It has been an interesting and challenging time to say the least.

Perhaps what has been the most revealing is the relationship between the financial management of the organizations and their auditors.  In each case, there were areas where I would have expected the auditors to have identified omissions or oversights that were material to the organization’s financial health; however, this was not the case. For the record, these clients used different auditors.

So, who checks up on the auditors?

The role of the auditor is to review the financial records and procedures to provide an independent assessment of the financial position of the organization and determine if the numbers accurately reflect the state of their finances at a point in time.  They use a number of tests to do this that are dictated by the Canadian Professional Accountants standards.  But what if they make a mistake, or miss something? Who checks them?  Well, nobody unless the client raises a question and often the client does not know where to look to see if there is an issue.  As I mentioned, my review of these clients did raise several material items that the auditors appear to have missed and which adversely affected the sport organization’s financial position.

Now, I am not an auditor nor am I a CPA….but I do have over 25 years of experience working with the financials of many different sport organizations… and knowing what to look for helped me identify some issues.

Organizations often use the same financial management staff, contractors, and processes year after year and retain the same auditors for many years as well.  This is not unusual and certainly has its benefits in that a strong relationship can be built and there may be cost savings due to familiarity.  The relationship between the organization, its financial management staff or contractors, and the auditor is one built on trust.  This trust may allow the auditors to accept explanations for figures or processes when proof or validity may not be readily available, and this is not a bad thing. But, it can also lead to complacency.  The old “well this is what was done in the past so it’s okay now” syndrome.  Given what I found in working with these clients, I would suggest that this complacency should be challenged in order to ensure there is a robustness to any financial review.  While I have seen audit reports questioned on specific areas, and occasionally revised, the audit report is the final word on the financial health of the organization. There is no higher oversight than the auditor.

Should organizations change auditors regularly? Well there are pros and cons to this tactic.  As I mentioned, using the same auditor over a period of years allows them to get to know your organization, how your books are set up, and the people responsible, and this familiarity can make the audit process more efficient which can save you money.  Changing auditors regularly can raise the perception the you have something to hide or that there are issues with your finances.  It takes time to contract a new audit firm and build a relationship.

I am not necessarily recommending that organizations change auditors. But I am suggesting that organizations consider a less expensive option and conduct an in-depth financial review every few years. This independent review would look at all of your systems and processes, review your previous audits, challenge complacent practices, and see if there are efficiencies to be had or any areas of financial management that need to be addressed. An audit of the auditors.

If you feel your organization’s financial systems could use an independent review, or if you would like to start the discussion, I am more than happy to help out.

Kathy Hare (KEH@sportlaw.ca)