Audit shortage bites charities hard

Charities are waiting at the back of audit queues because New Zealand’s critical shortage of auditors has been worsened by covid-19.

Chartered Accountants Australia and NZ (CAANZ) revealed 200 unfilled auditor vacancies last year. Vacancies increased because the closed border meant experienced auditors overseas could not come to NZ.

The auditor shortage was brewing before covid, but the industry hopes border waivers for 180 auditors and the border now reopening will soon increase numbers.

But charities competing for audits with companies with strict reporting deadlines are expected to face delays for some time.

It’s easier for charities than companies to get filing extensions of accounts. Companies employing full-time accountants are also more likely to know what the auditor expects of them, so audits can be easier and quicker for them than charities without relevant experts, particularly at the smaller end of the charities world.

Understanding cost 

Craig Fisher, an audit specialist for not-for-profits and charities, who consults for RSM, the accountancy firm he previously chaired, says understanding audit and regulatory costs was difficult for some charities.

He says covid lockdowns meant auditors couldn’t visit clients, so sifting through paperwork and discussing audit queries was via emails and calls, which in some cases added up to 30% more cost and time to the audit process.

This cost has dealt another blow to charities already dealing with cancelled fundraising events, volunteers being forced to stay home, fewer donations and grants, and less activity for causes.

But Fisher says: “There is the clear advantage of income tax-exempt status and having public credibility, so some compliance is required.

“We’ve made it easy to register a charity in New Zealand, but some people don’t apply effort and resources to succeed because they find it too hard.”

He says some financial returns of charities on the register were of a poor standard. 

“There’s little point enforcing the transparency of financial information if everyone does their own thing; that’s why we need consistent standards,” he says.

“A graduate requires some years of training to become experienced, so we can’t do audits for free, but charities do get discounts more than other entities."

Reputational harm

Fisher says audits help the bigger charities, which need audits because of their expenditure level, to avoid reputational harm.

“If something goes wrong with a company and it suffers bad press, life will continue but if something goes wrong in a charity, its credibility can be questioned for years,” he says. 

Other charities can also be tainted by implication if they share the same words in their name.

Small charities

Auckland auditor Diane Robinson audits or reviews smaller tier three and four charities and not-for-profits through her company, Called To Account.

Under the Charities Act criteria, most expenses are under the threshold for audits but that doesn’t mean they avoid them, she says.

Some small charities are so old they have audit requirements in their rules, or constitutions, if incorporated.

People or organisations can also stipulate an audit as a condition for a grant. 

“Grants have been allocated this way for many years, when a review at half the audit price would suffice,” Robinson says. 

She also says many small charities are being audited when they don’t need to be and when they have only a little money.

Robinson says audits have to be put into perspective, especially when money is not from the public.

“The bigger charitable trusts are set up by philanthropists with their own money, so there is no accountability to the public.

“Other charities get grants indirectly from the public purse but still need accountability.

“A charity might get a one-off grant of $100,000 to renovate club rooms but still has to pay for an audit even though it has a builder's receipt and can show the money leaving its bank account.”

Relief in sight?

Audit standards are being proposed for less complex entities (LCEs) due to growing concern about the length, relevance and comprehension of international Standards of Auditing (ISA). 

Fisher says the industry was also coming to the view of a threshold – possibly under $10,000 of annual expenditure or income – where it agreed “just not to care” about an audit or a review.