One technique used by auditors when trying to understand a complex situation is to get a piece of paper and draw all the components, cash flows, and relationships. Sometimes there is just too much going on to understand the words and you need a picture.
Try doing that with the Chronicle of Philanthropy’s article, A Consultant’s Revenue-Generating Tactics Draw Scrutiny. I think you’ll get a superb education on the GIK issues in the NPO community.
As you reread the article, pay close attention to the variance authority issues. There are a couple of transactions and a few comments mentioned in interviews which ought to be troublesome to an auditor.
A variety of audiences are looking at this issue. Here are a few thoughts for some of those audiences.
Auditors – After studying the article you might find a few questions you could ask about the GIK transactions you are auditing.
The article will provide an education on some of the things that are happening beyond what you can see when performing the audit of one entity. You can also see the flow of transactions across multiple entities which usually are invisible during an audit.
Comments made by some of the donors make me think that confirmations might be really helpful when testing GIK’s. Perhaps even a phone call might be wise when most of the income is from one provider of GIK.
The article could generate some good questions for your SAS 99 and risk assessment brainstorming sessions.
Reporters – If you have just started looking at this issue and are wondering if there is still a story to be found, the reporters have shown how to cross reference multiple tax returns to understand the substance of transactions. I perceive that is a technique which could be used elsewhere.
By my count there are seven NPO’s mentioned in the article. For three of them, the article hints at some additional substantive questions that could be asked of the organization’s accounting. Might be a reasonable chance of finding something worth reporting there. For another three, I can see hints in the article of places where there is room for more research on their financial reporting. Not as likely to find a story there, but a path is visible. The article doesn’t contain any comments about the last organization which would show a path for further research.
AG or IRS staff – If there happen to be any enforcement people reading this obscure little ol’ blog, the article provides a roadmap on looking at the organizations discussed. The article also provides a framework on how to research transactions between other organizations.
Accounting staff of R&D NPOs – Observe the way reporters are starting to connect the dots on transactions. I hope you can see it is not a pretty picture they are drawing. There is a growing body of public knowledge.
After reading articles from a number of media outlets, I have realized there are a lot of reporters who understand accounting theory and are skilled at reading 990s. Take another look at the range of articles I’ve linked in my posts – there is a growing number of knowledgable reporters working on this issue.
It is well past time to clean up the accounting used for GIK. The World Help staff and their auditor have shown is it possible to make changes quickly.
Time is running out.
If you are interested in the GIK issue, it would be worth your time to reread the Chronicle article.
Have a pad of paper and pencil handy.