Recent developments in the public companies sector have raised significant concern about the role of independent auditors and their responsibility to detect fraud and fraudulent financial reporting practices. Although the Sarbanes Oxley Act and related provisions do not apply directly to the private sector or to not-for-profit organizations and churches, there are implications that are relevant and that will "trickle down" to become applicable. One of the outcomes is the recent acceleration of numerous auditing standards.

In October, 2002, Statement of Auditing Standards (SAS) No. 99 "Consideration of Fraud in a Financial Statement Audit" was issued. SAS No. 99 is effective for financial statements for periods beginning after December 15, 2002, with earlier application encouraged. SAS 99 extends auditor responsibility for the consideration and evaluation of fraud risk in planning and conducting a financial statement audit.

Any fraud risk evaluation must start with an understanding of the organization's risk assessment process and responses to mitigate those risks. Although Christian ministries embrace the highest levels of integrity and biblical principles, fraudulent financial reporting or misappropriation of assets occurs frequently, although it is not often publicly disclosed. Normally, fraud results from inadequate internal controls that give rise to opportunity, coupled with individual need and the ability to rationalize such action.

Effective fraud risk management must begin with an organization's board and senior management. Attention to establishing an anti-fraud environment within the organization is the foundation of an ongoing process of risk assessment and response by management to mitigate risks.

Nonprofit organizations should develop and adopt a policy statement on suspected misconduct and dishonesty. A clear policy on this matter is an important part of an anti-fraud environment. Organizations need the collective expertise of their entire supervisory and management team to effectively deal with the challenges and exposures that fraud and misconduct present, even for church and ministry organizations. Everyone needs to know what to do when wrongdoing is suspected.

See a Sample Policy here

Gregg Capin serves as partner in charge of Marketing and Practice Development for Capin Crouse LLP, a CPA firm devoted to serving not-for-profit organizations nationally and internationally. The firms regional offices include: Atlanta, Chicago, Colorado Springs, Denver, Indianapolis, Grand Rapids, and Los Angeles. For more information, visit www.capincrouse.com

Reprinted with permission from the Engstrom Institute; © 2009 Christian Leadership Alliance - 800.727.4CLA. Visit CLA's website to see what they offer your organization to help build leaders and enhance organizational effectiveness!