EXECUTIVE SUMMERY

Audit procedure is mainly a step by step approach. As this is a case study on a selected NGOs (according to ACNABIN no one can disclose the name of the Company name) particular project, it will cover a little area of NGO auditing. But the snapshot can be obtained from this study. The selected NGO has wide range of operations. As an audit firm ACNABIN does complete set of procedures to be followed at the time of audit performed. From engagement to report submission the process is followed with reasonable and professional care and maintaining all rules and regulation and standards.
In this report the main focus was on the implementation procedure of audit and finding out the features that is taken to audit the NGOs. NGO auditing is not like general company auditing. Huge amount of foreign donations are involved here. For that reason the verification of the authenticity of foreign donation is mandatory in case of NGO auditing. The 35 conditions imposed by NGOAB are considered a guideline in this regard.
The auditing is done to find out irregularities regarding stock management, fixed asset management, proper implication of Bangladesh Accounting standards, VAT Act, Income tax ordinance, labor law and other included in internal control system.
The recommendation provided by the auditor is obviously beneficial for the NGOs as those can improve the quality of the respective NGOs performance. In the audit a follow up of the previous year’s audit is verified whether that is solved or not. If not, recommendation on taking proper action is communicated to the management.
But the effort will best be obtained when the transparency of financial reporting will be ensured through a system where the audit procedure will be more flexible and easy to understand. Because it will ensure greater accessibility of people to disclose and evaluate as well as understand and implement the auditing and accounting knowledge.
The auditing profession has contributed and will be contributing a greater extent in ensuring transparency and efficiency of internal control system of various sector of Bangladesh. The achievement of the auditors will be then when the maximum people of the country will be aware about their rights and then proper transparency will come conquering all obstacles.

CHAPTER – ONE
Opening

1.1 Introduction:

Bangladesh has a history of rich sociological bondage. This social bondage is a basic cultural attributes of Bangladeshi society. With the span of time the social bondage and other social developmental and other activities is now loosing the appeal and effectively. But the state and governmental system is not as adequate to fulfill the requirement of the people of our country. The new capitalist culture is now expanding the income gap between the rich and poor. Undesirable Social and Cultural hazards are now growing in numbers. Government is elected by the people but due to some sort of systematic hazards and cultural deterioration all governmental activities do not fully benefit the people of the country. NGO’s are welcomed here to replace this type of responsibilities which would have to be done by the Government. Non Governmental Organizations (NGO) is not financed by the Government. NGO’s mainly receive fund from foreign countries and they expend this on different projects aiming to maintain social awareness covering the site of education, sanitation and health. To ensure proper transparency and accountability generally auditing is done on those NGOs. Because there are huge possibilities of misusing the fund received from the foreign donor. Potential threats and prospects of NGO auditing is now a very important aspect to raise awareness of the stakeholders of the NGO’s and making an evaluation to improve the quality of auditing. This NGO receive a huge amount of Donations which are transmitted to Sub-recipients NGOs and with prescribed instruction and Budgets. But due to some difficulties and Problems the proper clarification of the audit made cannot be achieved. Due to the weakness in internal control system and other associated external problems the proper utilization of fund money sometimes fall apart. To minimize the risk of that misuse the roll of auditors is important. What should be those roles in assessing the risk, minimizing those risks, strengthening the internal control system and making adequate contribution to the development of the country is an important aspect of this internship report proposal. ACNABIN as a leading chartered accountancy firm has a wide practical exposure on the NGO auditing. In this study those information are incorporated which are best conform the procedure of Auditing of a NGOs by a CA firm.
1.2 Objectives of the study:

Generally in our academic life we get theoretical knowledge about different aspects. But now a day, in the job market there is no substitute of work experience. Getting meaningful work experience in one major field of study must to be given a high priority. After getting theoretical knowledge from university, it is all about the application of that knowledge in real world situations. It has immense importance to establish relationship between theory and practices in real world situation. Practically The Procedure of NGO auditing is deeply characterized by the current accounting and auditing standards, Role of regulatory authorities, Activities of Different Financial and Non-Financial Institutions from home and abroad and Government itself. The objectives of this report are:
Gaining practical knowledge and experience on how a chartered accountancy firm (ACNABIN) performs an audit and a how audit work.
Special Procedures taken by the Firm (ACNABIN) to audit NGOs and their sub recipients.
Understanding the field level problems related to the implementation of the prescribed procedure from the part of both Auditor and client?
Getting a exposure of the Problems in internal control system of different Organizations and plausible recommendations.
Understanding how NGO’s are being benefited by the supervision of the audit firm with adequate exposure on future prospects.

1.3 Methodology of collecting Information:
The hypothesis which I have developed will be through empirical testing research based on the collection of quantitative data taken from financial statements, balance sheets of Different Sub-Recipients and the selected NGO itself. I will mainly focus on the qualitative aspect of my audit. Because for most of the cases, auditing is not only to focus on quantitative aspects of information, it is focusing on qualitative aspects of information also. And there is a high confidentiality regarding the quantitative information.
In order to prepare the assigned project paper I have collected necessary information from two types of source as follows:
1) Primary sources information.
2) Secondary sources information.
Primary sources information
1. I have collected primary information by working with NGO audit teams.
2. Discussing with engagement partner, audit manager, audit stuff and articled students.

Secondary sources information
1. I have also collected secondary information like annual audit report, management audit report, accounting system, Policies, Circulation & audit working papers.
2. The information was obtained from various corresponding files of the firm.

1.4 Limitation of the study:

During my study, I have confronted some challenges. I have tried my best to overcome those challenges. Even then, I have some limitations. The study is conducted with an objective to make a thorough study of external audit procedure. The challenges I mentioned before can be termed as the limitation of my study. Those limitations are as follows:

a) As the internship was the first practical experience, it was not possible for me to know all and everything of audit procedure.
b) Some qualitative information is incorporated and for that reason the name of the NGO cannot be mentioned.

CHAPTER TWO
LITERATURE REVIEW

NGO means Non Government Organization. NGOs are not self-serving in aims and related values. Their aim is to act in the public arena at large, on concerns and issues related to the well being of people, specific groups of people or society as a whole. They are not pursuing the commercial or professional interests of their members.
Non-governmental development organizations are potentially critical catalysts for unlocking the energies and resources of the poor and voiceless, and for building pluralistic and democratic societies. To be effective in this role, they must formulate and implement programs that strategically promote and support long-term changes that have large-scale development multiplier effects. All too often the early successes of NGOs are difficult to sustain let alone replicate on a larger scale, because of problems in organization and management. (Brown, David. 1988. “Organizational Barriers to NGO Strategic Action.” Institute for Development Research, Boston, 10 pp.)

“Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent, independent person.” (Loebbecke.1986)

In other words Auditing is subject to expectations and demands which are, justifiably or otherwise, often disappointed (Kealey, Lee & Stein 2007).
According to the Companies Act 1994, accounts of companies registered under this act must be audited by chartered accountants within the regulations of the Bangladesh Chartered Accountants Order 1973. Similarly, all books of accounts maintained by a non-government organization receiving foreign donations shall be audited by a chartered accountant as defined in the same Order (http://www.banglapedia.org/httpdocs/HT/A_0361.HTM)
NGO Auditing is being characterized as a tool to find out the possible threats and risk associated with the operation of the NGO. To ensure Accountability in NGO sector previously studies are done. With regard to the evolution of NGO accountability practices and their implications on NGOs, Songco (2007) finds that the effort of creating a more proactive environment for NGO accountability is to dissect the different levels at which accountability needs to be promoted, the methods that can be used by NGOs operating in these different levels and incentives and disincentives that can be instituted in this regard. Lloyd R. and de las Casas, L. (2005) investigate NGO self-regulation and its impact on enforcing and balancing accountability.
Srinivas(2005) claims that NGO accountability covers issues such as organizational management, project implementation, financial management and information disclosure. It is related to issues such as answerability, responsibility, liability, dependability, conscientiousness, reliability, trustworthiness, legitimacy, and transparency. There has been a rising visibility and stakes of NGOs’ work. A crisis of legitimacy in many sectors, especially business and government has amplified the need for NGOs as a ‘counterbalance’.
Srinivas(2005) concludes that cases of NGO misconduct in advocacy, fund use, management, and governance, have come to light, questioning their very legitimacy and congruency with social values and expectations. Some NGO have also ignored the fact that they are answerable to key stakeholders and the constituency that they work with, for promises of performance. Bendell (2006) concluded based on the submissions of eleven world leading NGOs that the core values and operating principles for international NGOs, should include good governance and management; fundraising and multi-stakeholder engagement. It also makes specific reference to respect for universal principles (such as the Universal Declaration of Human Rights), independence, responsible advocacy, effective programs, non-discrimination, transparency and ethical fundraising.

With regard to the evolution of NGO accountability practices and their implications on NGOs, Songco (2007) finds that the effort of creating a more proactive environment for NGO accountability is to dissect the different levels at which accountability needs to be promoted, the methods that can be used by NGOs operating in these different levels and incentives and disincentives that can be instituted in this regard.

Lloyd R. and de las Casas, L. (2005) investigate NGO self-regulation and its impact on enforcing and balancing accountability. They argue that increasing visibility and increasing criticism, among other factors, have led to growing pressure on NGOs to be more accountable, both from within and outside of the sector.

CHAPTER THREE
PROFILE OF ACNABIN
Founded in 1985, ACNABIN started with seven partners. The name “ACNABIN” comes from the acronyms of the founder partners:
A = ABM Azizuddin
C = Anwaruddin Chowdhury
N = Abu Syed Mohammad Nayeem
A = Mohammad Akhtaruzzaman
B = ATMA Bari
I = Iftekhar Hossain
N = Mohammad Nurun Nabi.

At present the partnership comprises four founder partners and three new partners.
3.1 The Profile Of Acnabin At A Glance:

NAME OF THE AUDIT FIRM : ACNABIN
Chartered Accountants

DATE OF ESTABLISHMENT : 15 February 1985

MAILING ADDRESS,
TELEPHONE, FAX & E-MAIL : BDBL Bhaban (13th Floor)
12 Kawran Bazar Commercial Area
Dhaka 1215, Bangladesh
Phones: (880-2) 8144347-52
Fax #: (880 2) 8144353-54
E-mail: acnabin@bangla.net
Web site: www.acnabin-bd.com

BRANCH OFFICE : House # 734, Road # 26, CDA R/A, Chittagong.

NAME OF PARTNERS,
QUALIFICATION : ABM Azizuddin
B.Com. (Hons). M. Com., FCA
(ICAB Regn. # 46)

: Iftekhar Hossain
B. Com., FCA
(ICAB Regn. # 150)

: Abu Sayed Mohammed Nayeem
B. Com. (Hons.), M. Com., M. Sc., (UK), FCA, FCCA
(ICAB Regn. # 353)

: Mohammad Nurun Nabi
B.Sc., FCA
(ICAB Regn. # 370)

: Md. Rokonuzzaman
M. Com., FCA
(ICAB Regn. # 739)

: M. Moniruzzaman
B. Com. (Hons.), M. Com., FCA
(ICAB Regn. # 787)

: Md. Mominul Karim
B. Com. (Hons.), M. Com., FCA
(ICAB Regn. # 934)

  Consider internal control structure

Every NGO has some kind of accounting system by which transactions are processed, and records of those transactions maintained. That ‘system’ should incorporate control features and is normally referred to as the system of ‘Internal Control’.

The existence of a reliable system of internal control can be a great help to the auditor, because the objectives of the system should be:

a)           Ensuring that the records are complete, accurate and properly authorized;

b)           Detecting errors and fraud.

So, ACNABIN’s first task in relation to the NGO’s system of internal control is to ascertain record and evaluate it. Then properly using the knowledge of the NGO’s system to plan audit tests to be performed is necessary.

We consider the activities of internal auditing and their effect, if any, on external audit procedures. So we try to:

 Understand and Assess Internal Auditing

As external auditors, we should obtain a sufficient understanding of internal audit activities of the NGO that assists us in planning the audit and developing an effective audit approach. During the course of planning the audit, we should perform a preliminary assessment of the internal audit function when it appears that internal auditing is relevant to the external audit of the financial statements in specific audit areas.

 Evaluate and Test the Work of Internal Auditing

To use specific work of internal auditing, we evaluate and test the work of internal auditing to confirm its adequacy for the external auditing purposes.

The evaluation of specific work of internal auditing involves consideration of the adequacy of the scope of work and related programs and whether the preliminary assessment of the internal auditing remains appropriate. This evaluation may include consideration of whether:

  The work is performed by persons having adequate technical training and proficiency as internal auditors and the work of assistants is properly supervised, reviewed and documented;

  Sufficient appropriate audit evidence is obtained to afford a reasonable basis for the conclusions reached;

  Conclusions reached are appropriate in the circumstances and any reports prepared are consistent with the results of the work performed; and

  Any exceptions or unusual matters disclosed by internal auditing are properly resolved.

The external auditor would record conclusions regarding the specific internal auditing work that has been evaluated and tested.

  Identify NGO expectation

As external auditor, we should identify the NGO’s expectation and design and perform the audit to meet the NGO expectation.

  Consider materiality

Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement.

In designing the audit plan, we establish an acceptable materiality level so as to detect quantitatively material misstatements. However, both the amount (quantity) and nature (quality) of misstatements need to be considered.

Materiality should be considered by the auditor when:

1. Determining the nature, timing and extent of audit procedures; and
2. Evaluating the effect of misstatements.

Quantifying Materiality

For General Companies a common rule of thumb for materiality is 5 to 10 percent of pretax income. Items less than 5 percent are considered immaterial, whereas items that are more than 10 percent are material. For items between 5 and 10 percent, judgment is applied. But in case of NGO auditing materiality is considered when there is any type of discrepancy regarding the amount in financial statements and policies to be applied.

4.2.3 Assess General Risks

During audit planning and risk assessment, we obtain initial audit evidence in order to:     

1. Effectively assess the inherent risk of potential financial statement misstatements,
2. Identify indicators of possible going concern problems, and
3. Identify account specific risk and design an overall audit approach to provide reasonable assurance of detecting material misstatements.

The assessment of risk is accomplished using a “top-down” approach. The audit team focuses initially on high level information. The nature and extent of documentation will vary significantly based on an entity’s size, complexity, ownership characteristics, and level of risk.

Key Factors

Significant background information and NGO, economic and industry conditions that provide an indication of the level of risk for an engagement are mentioned in items 1-15 listed below:

1. Understanding NGO business: Can be obtained from various sources, e.g. annual report, minutes, internal reports, previous year audit work papers, discussion with NGO;
2. Management’s style, outlook;
3. Significant Current Events and Reporting Issues;
4. Results of Financial Performance Review;
5. Management Control Environment;
6. Accounting System – Policy, Procedure & Manual;
7. Materiality Consideration;
8. Limitations of the engagement, if any, e.g. documents lost, post dated appointment, no inventory, no cash count was done;
9. Processing Methods- The processing methods used by the entity for significant      accounting applications;
10. Audit Inherent Risks: Audit areas likely to cause problems or require unusual attention, e.g.

a)         Financial Statements items likely to require adjustments;

b)         Conditions likely to require modification of audit tests, such as related party transaction, going concern problem or possible fraud;

1. Reports: The kinds of reports to be issued, such as

a. Filings with regulatory agencies- NGO Bureau;

b. Special Reports- FD4, For USAIDS- OMB A-133, A-128;

c. Compliance with contractual provision: USAID terms and conditions;

1. Overall audit approach;
2. Coordination and timing;