Audits and Monitoring Are Improvement Tools

In the nonprofit sector, audits and monitoring are a crucial part of the quality improvement process and are not viewed with the same level of suspicion and fear that they are in other sectors. Audits and monitoring are used to help assess risks, ensure that the board of directors and upper-level management are following best practices in the operations of the organization, and identify potential conflicts of interest. These tools are especially important for organizations like us that have stewardship over tax-payer dollars and provide programs and services to the community. Auditors play an important role in evaluating and verifying that good accounting practices are followed, evaluating and verifying financial records and transactions to ensure accuracy, verifying compliance with laws and regulations, and evaluating internal controls. They provide independent assessments of financial statements and processes and procedures to help the board of directors make informed decisions, and they provide recommendations for improving financial and operations processes based on their findings. Organizations like Community Partnership who oversee tax-payer dollars are required to have a special kind of independent financial audit, called a “yellow book audit,” conducted every year.

Monitoring, on the other hand, is an ongoing process to ensure that processes are working as they are intended to work. Auditors, boards of directors, and the management of organizations use monitoring tools and processes to verify that policies and procedures are working and that risks to the organization are identified and addressed. Occasionally, monitoring can also identify when there are conflicts of interest. Agencies like Community Partnership who receive tax-payer funds are overseen by state and federal departments, who regularly perform monitoring activities and work with organizations to develop improvement plans when risks are identified.

As mentioned in the Sunday, August 10th edition of the Butler Eagle, until 2022 Community Partnership operated under the umbrella of another nonprofit organization. Community Partnership was considered a “related party”. Related parties are organizations that are in a defined relationship with another entity, and that relationship can include shared management personnel that have control or a significant influence over the reporting entity. Many of the administrative services that we need were performed by that organization. Additionally, we also shared many of our policies and procedures. During the course of a regularly scheduled monitoring in the spring of 2022, the state department that was performing the monitoring activities identified a significant conflict of interest in this “related party relationship”. Agencies who receive federal funding are required to follow set procurement guidelines, and in our case, these guidelines were not followed when the related party relationship was established. The common management structure and the sharing of administrative services was determined through the monitoring process to be a special conflict of interest called “self-dealing”. The monitoring process determined that this relationship presented a significant risk to our organization and the clients we serve.

2022 Quality Improvement Steps

When audits and monitoring activities identify risks and areas for improvement, auditors work with organizations to develop improvement plans that are intended to strengthen the the organization and lessen any identified risks. These improvement plans are developed and shared with the state or federal agency, or through the annual yearly audit. in a formal process called a corrective action plan. The state agency performing the monitoring identified three immediate key steps we could take in 2022 to lessen the risks posed to the organization through the related party relationship. Community Partnership was instructed to immediately dissolve the common management relationship, which was done at our May 2022 board of directors meeting. Later in the summer, we were instructed to update our procurement policy to match federal guidelines, and to conduct a public bid process for our administrative and support services. We outlined these steps in the corrective action plan we wrote in 2022. Our board approved the updated procurement policy, and we developed and issued requests for proposals for key administrative and support services (fiscal, human resources, information technology, and transportation). At our November 2022 board meeting, our board of directors selected the most appropriate bids submitted by service providers and we spent the remainder of 2022 transferring those administrative and support services to our new vendors.

2023 Quality Improvement Steps

Coming soon-we will be continuing to update this section of the website over the coming week.