Audit Report: Internal Controls for a Charity Concert Series
This paper presents an audit analysis of Rhythm on the Vine (ROTV), a charity concert series benefiting Shriners Hospitals for Children. It examines best practices for cash handling and audit preparation, evaluates the organization's existing internal controls for donations processing, and assesses the quality of financial documentation provided to auditors. The audit uncovers multiple material deficiencies, including the absence of formal GAAP financial statements, basic arithmetic errors in event budgets, archaic recordkeeping technology, insufficient separation of duties, and procedural barriers that obstructed auditor inquiries. The paper concludes with a formal audit report finding that ROTV cannot receive a passing grade due to the severity and breadth of its accounting and internal control failures.
- Overview of Rhythm on the Vine and Cash Handling Risks: Event background, ticketing structure, and financial risks
- Cash Handling Best Practices: Separation of duties and transaction recording standards
- Planning Best Practices: Audit preparation steps and pre-fieldwork procedures
- Internal Controls and Donations Handling: Evaluation of ROTV donation intake and control gaps
- Financial Statement Analysis: Budget errors, missing statements, and red flags
- Audit Report: Formal audit verdict and material deficiency findings
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What makes this paper effective
- It moves logically from risk identification to best practices to evidence-based findings, giving the audit report a credible foundation.
- Specific numerical examples (e.g., a 95.36% expense ratio versus a 35% allowable limit, a $17,000 unbudgeted space rental) ground the analysis in concrete evidence rather than generic claims.
- The formal audit report section synthesizes earlier findings into a professional conclusion, mirroring real-world audit reporting conventions.
Key academic technique demonstrated
The paper demonstrates applied audit methodology: it introduces a normative framework (best practices for cash handling and audit preparation), evaluates observed practices against that framework, and renders a formal judgment. This structure — standard, observation, gap analysis, conclusion — is the core technique of any professional audit or compliance review.
Structure breakdown
The paper opens with an organizational overview and risk identification, then establishes normative benchmarks in two best-practices sections. Part Two evaluates internal controls and evidence-gathering procedures in detail. Part Three addresses financial statement deficiencies with specific examples. The paper closes with a formal audit report that synthesizes all findings into a professional verdict. Each section builds directly on the previous one, ensuring the final report is fully supported by the preceding analysis.
Overview of Rhythm on the Vine and Cash Handling Risks
Rhythm on the Vine (ROTV) is a concert series run on a charitable basis by Shriners Hospitals for Children. As a concert series whose events are growing rapidly in size, ROTV requires the Shriners organization to implement proper procedures for financial management and cash handling at these events. Members of the public pay for their tickets by credit card or online, but some ticket purchases occur at the events themselves, and in some instances there are cash purchases of food and beverages. There are several different ticketing tiers, with the highest level of sponsorship at $5,000 and lower levels down to $35 tickets in the picnic area. The picnic area generates cash sales of food and beverages in particular, as many picnic guests rely on ad hoc food purchases. In addition to ticket sales, silent auctions are also held.
There are considerable risks associated with this event, and these risks grow as the event grows. The larger the event, the more difficult it is for one or two key individuals to exert adequate control over it. Ultimately, the event will require controls to be put into place to ensure that the cash collected is properly accounted for and remitted to Shriners Hospitals. Internal communications between the organization's accountant and other staff illustrate that there may be insufficient controls even over credit card receipts. The accountant for Shriners Hospitals of Los Angeles books work using both paper records and spreadsheets, which allows for some reconciliation but also makes financial management for ROTV more complex. Adding further complexity is the fact that ROTV is a separate unit within Shriners yet uses the same accountant as the broader organization.
Cash Handling Best Practices
There are several recognized risks associated with cash handling. The most fundamental best practice is separation of duties, meaning the person disbursing cash should not be the same person recording the transaction. Those involved in cash handling should be granted specific authorization to do so and assigned specific duties. This way, the organization can maintain separation of duties and can more easily track transactions (Gustafson, 2015). Disbursements in particular should be subject to authorization, and authorization for larger transactions should come from someone other than the person disbursing the cash.
Every cash transaction should be recorded — ideally, the organization would use an application so that transactions can be recorded in real time on a tablet, with records later verified against actual cash holdings. Inventory should also be evaluated to ensure that quantities consumed align with cash payments received for those goods (Cantoria, 2011). While the records available for ROTV do not indicate that any cash was handled improperly, these policies and procedures should nevertheless be established in the event that cash handling is required at any point.
Planning Best Practices
There are several best practices with respect to planning an audit. The audit team must endeavor to understand the organization and its industry as thoroughly as possible. Familiarity with both the internal and external environments gives the audit team the context it needs to make subjective judgments about issues such as materiality and certain aspects of the financial statements, such as debt or cash flow levels. Understanding the organization is therefore an essential component of audit preparation.
Another best practice in audit preparation is to examine the prior year's financial records and audit reports and, where possible, to contact the former auditing team. This is part of the familiarization process, can help to speed up the audit, and can help the audit team identify key areas for investigation. Access to current financial statements is also valuable in this regard. Lastly, the audit team should communicate with the management team of the organization being audited to explain at minimum how the audit will work, its timeline, and what the team expects from both senior management and junior staff. If specific documentation is known to be required, this should be communicated during the pre-audit phase (Allen, 2014). One of the primary objectives of pre-audit preparation is to minimize the time and effort required during fieldwork.
References
Allen, J. (2014). Audit preparation best practices. Maner Costerian.
Cantoria, C. (2011). What internal controls should be in place for handling cash? BrightHub.com.
Gustafson, F. (2015). Best practices for handling cash. eHow.
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