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What is expected in terms of new behaviors and procedures, and what are the consequences (for individual employees and volunteers) for failing to adhere to the new procedures (Note: Understand that middle and senior management must be prepared to carry out the consequences swiftly to send a strong message throughout the organization) How to Build a Document Retention System that Is n Compliance with SOX The system you design for document storage, archives, and retrieval must be logical and user-friendly If staff can t understand what it s about, what s expected of them, and why they are being asked to do this, the probability of success is low Step 1: Consider what types of documents your nonprofit would need to store/ archive and be able to retrieve Some examples of documents that need to be stored include: grant documents, tax and other financial documents, and copies of policies Be sure to build in the requirements of any third-party reviewers such as auditors or regulatory agencies, so your system will satisfy the expectations of these reviewers Step 2: Inventory the nonprofit s current record system to determine what records are in use, what records are in storage, and what records are archived This step should also include a review of the types of e-mail messages and instant messages that are routinely transmitted along with attachments Step 3: Develop retention rules (based on legal requirements and the operational needs of your nonprofit) and ensure that these rules are clearly disseminated to all staff and volunteers There needs to be a classification system (develop a simple one) that allows for documents to be classified as confidential, private, or other designation that precludes them from general access As part of this step, it is essential that a training program be developed for staff to ensure that they understand what is expected of them, what the procedures are, and what records they are expected to retain Step 4: Develop a process for finding and preserving documents that either will be or are part of an investigation or legal action There must also be a mechanism for announcing that no documents are to be destroyed until an all clear notice is given and stiff consequences for failing to adhere to this directive Step 5: Develop rules for managing, storing, preserving, and archiving electronic messages or other electronic data The rules should address the important issues, including listing the types of documents that are to be retained and how these documents are to be stored The process need not be complicated, but the rules need to be standardized there is no room for doing your own thing Staff and volunteers need to understand that they are obligated to.

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ficient evidence Audit program design was the deficiency found in 44% of the cases, and in 24% of the cases, relying on internal controls that were weak or nonexistent was the deficiency Given the importance of the audit plan, the audit committee should review the audit plan with the auditor, being sure that the audit plan addresses any concerns the committee might have about the nonprofit s internal control system or other financial areas Reviewing the audit plan should also entail raising questions about the cost of the audit Are there any steps the nonprofit can take to help control the cost of the audit, without affecting the overall quality of the audit If any additional work is required by the audit committee, what would the costs be After any questions or issues regarding the audit plan are resolved, the audit committee should request the auditor to summarize his or her understanding of the services to be rendered and the cost of those services in an engagement letter Only after reviewing that the document accurately reflects the expected services and costs should the audit committee engage the auditor The quality of the auditor selected and the overall audit plan is critical due to the importance of conducting a thorough audit of the internal control system and the inancial statements.

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Having a thorough audit of the nonprofit s financial statements increases the likelihood that the financial statements will accurately portray the nonprofit s financial standing Potential lenders, donors, funding organizations, and other stakeholders use the financial statements to make decisions about a nonprofit s financial health, so it is essential that the statements present an accurate representation of the nonprofit s financial status Otherwise, the stakeholders of the nonprofit may make poor decisions about making loans, giving contributions, or providing funding An audit is the examination of the financial statements by an independent public accounting firm in order to form an opinion regarding the statements adherence to GAAP This type of audit is an external audit, as the individual performing the audit should not be directly connected with the nonprofit being audited Once the audit is complete, the auditor prepares the auditor s report, which contains the auditor s opinion regarding the financial statements The auditor s report is also known as the Report of Independent Accountants What Are the Types of Opinions and What Do They Mean The auditor s opinion can be one of five different opinions: unqualified, unqualified with explanatory language, qualified, adverse, or disclaimer of opinion The unqualified opinion is regarded as a clean bill of health, where the auditor makes no exceptions and does not include qualifications in the report An unqualified opinion should only be made when the independent auditor deems that the financial statements were made in accordance with GAAP, that GAAP were applied in a consistent basis, and that the statements include all of the information necessary to make the statements accurate If circumstances require an auditor to add clarifying language to the standard report, the opinion is not considered qualified, but rather unqualified with explanatory language Adding the additional language is not regarded as a qualification since the inclusion of explanatory language serves to advise the readers or users of the statements Auditors add explanatory language to an unqualified opinion for the following reasons: To emphasize a particular matter or circumstance To justify a departure from GAAP To highlight an uncertainty that could have a significant effect on the financial statements For example, the auditor may want to draw attention to he fact that the nonprofit is facing significant litigation, or has a trend of losing money from operations The auditor may include explanatory language if there is a question about the quality of the records or supporting documentation.

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