What are the specifics of auditing non-profit organisations, foundations and municipalities?

Čo v článku nájdete:

• What is audit?
• When is the audit mandatory? (Accounting Act)
• Audit of non-governmental non-profit organisations and municipalities
• Non-governmental non-profit organisations
• Municipalities
• Conclusion of audit as an instrument

These bodies often manage public or donated funds, provide services of general interest and are accountable to donors, the state or the local community. This is why auditing financial statements is a key tool to verify that they handle these resources transparently, legally and purposefully. However, the audit in the non-profit and public sector has its specificities. It differs from the classic corporate audit not only in legislative terms, but also in its focus and importance. Let’s take a closer look.

What is audit?

Audit of accounts is the process of independent verification of the correctness, completeness and legality of accounting management. In practice, this means that a certified auditor checks that the organisation’s financial statements faithfully reflect its management and comply with the applicable legislation. Audit is not about finding mistakes. Its aim is to provide assurance to the management of the organisation, its founder, the public or donors that the management is managed correctly and transparently. We distinguish between two basic types of audit:

• Legal (mandatory) audit It follows directly from the law and is linked to the size, income or other criteria of the entity,
• Voluntary audit It is initiated by the organisation itself, for example because of the trust of donors, the public or in obtaining grants.

When is the audit mandatory? (Accounting Act)

Slovakia governs the audit obligation of Law No 431/2002 Coll. on Accounting, namely Section 19. According to him, the financial statements must be audited by any commercial company or cooperative that meets at least two of the following three conditions, both in the current financial year and in the immediately preceding financial year:

• the total amount of assets exceeded EUR 4 000 000,
• net turnover exceeded €8 000 000,
• the average number of employees was more than 50.

However, these criteria do not apply directly to non-profit organisations, foundations or municipalities. There are specific rules for these entities, which will be discussed in the next section.

Audit of non-governmental non-profit organisations and municipalities

Non-governmental non-profit organisations

Non-profit organisations have an important role to play in the company, taking care of community-friendly activities, community development, education, culture and protection of the rights of different groups. Many of them manage public or donated funds, which naturally also entails a requirement for transparency and accountability. And this is where the audit plays its part. Audit of financial statements is also mandatory for certain types of such non-profit entities. It is Foundations (according to Act No 34/2002 Coll.), non-profit organisations providing services of general interest (Law No 213/1997) Z. z. a Non-investment funds (Law No 147/1997) Z. z.) which incurs this obligation if the organisation in a given financial year:

• has received public resources or a share of tax paid above EUR 200 000 or its total revenue exceeds EUR 500 000;
• or received more than EUR 35 000 out of 2% or 3% of tax on natural or legal persons.

In other words, if a non-profit entity manages a more significant amount of finance, either from public sources or from private donations through the tax designation, the law requires it to independently verify the accounts by the auditor. Social service providers such as civic associations, Non-profit organisations, special purpose appliances of churches a Church and religious societies (Law No 448/2008) Z.z. according to § 67a) if:

• the revenue of public funds and shares of tax paid is greater than EUR 200,000 or all revenue greater than EUR 500,000;
• income from 2%, 3% is greater than EUR 35,000.

I sports organisation (pursuant to Act No 440/2015) Z. z. o. sport), which has legal form of the civic association and is a beneficiary of public funds, has an obligation to have audited financial statements if:

• revenue of public funds and shares of tax paid in excess of EUR 250,000 or any revenue greater than EUR 800,000;
• income from 2%, 3% greater than EUR 35,000.

Municipalities

The municipalities are among the public institutions which manage budgetary resources, revenues from local taxes and charges, as well as funds from various subsidies or euro funds. This is also why control of their accounting and management is particularly important. The obligation to audit the accounts of municipalities results from Act No 369/1990 Coll. on municipal establishment (Art. 9 (4)). This paragraph clearly states that:

The municipality keeps accounts under a special law. The annual accounts of the municipality shall be audited by the auditor. The auditor shall also verify other facts provided for by a specific law.

In other words, each municipality and city is legally obliged to audit its annual accounts, regardless of the size of the municipality or the amount of its revenue. At the same time, the law allows the auditor to check other areas identified by other legislation, such as the management of public funds, the use of euro funds or compliance with budgetary discipline rules. Auditing is thus an important tool of public control, helping to prevent ine economy, conflict of interest and abuse of public resources.

Conclusion of audit as an instrument

Auditing in non-profit organisations, foundations and municipalities is not just a bureaucratic duty, it is a tool that strengthens the confidence of the public, donors and control bodies. It ensures transparency, promotes responsible management while helping to detect possible irregularities or systemic weaknesses. While businesses mainly pursue economic profit, non-profit and public organisations are responsible to the public, the community or the state. That is why an independent audit of the accounts is an important part of their activity, and it confirms that their activities are not only legal but also credible. Whether the audit is legally mandatory or voluntarily carried out, its contribution is undeniable. Ultimately, it helps organisations to do things right and, above all, to do the right thing.