Financial mismanagement in NGOs is more than just an internal issue—it has real-world consequences. A 2023 report by the International NGO Accountability Taskforce revealed that 65% of donor funding disputes stem from poor financial transparency, leading to funding losses exceeding $1.2 billion annually.

Additionally, non-compliance with international audit standards has led to regulatory fines and legal sanctions, crippling many organizations.

The takeaway? Poor financial oversight can cost NGOs their credibility, funding, and, ultimately, their mission impact.

In our nearly two decades of advising NGOs, we’ve seen firsthand how robust financial governance can transform organizations from struggling entities to models of accountability and efficiency. This article outlines essential strategies that top decision-makers must implement to audit-proof their organizations and ensure long-term sustainability.

Why Financial Transparency is Non-Negotiable for NGOs

NGOs operate in a high-stakes financial ecosystem where accountability is paramount. Unlike private enterprises, NGOs depend heavily on external funding, making financial transparency a make-or-break factor for survival. Strong financial governance achieves the following:

• Ensures Regulatory Compliance: Adhering to standards like IFRS for NGOs, IPSAS, and OMB Uniform Guidance (for U.S.-funded NGOs) protects against legal risks.
• Builds Donor Confidence: 73% of donors say financial transparency is a key factor in funding decisions, according to a 2022 Donor Trust Survey.
• Prevents Fraud and Mismanagement: NGOs lose an estimated 5% of annual revenue to fraud due to weak internal controls, as reported by the Association of Certified Fraud Examiners.
• Maximising Impact: Efficient resource management allows NGOs to achieve their mission effectively.

Read More: Risk-Based Auditing for Nigerian Non-Profit Organisations: Enhancing Accountability and Effectiveness

The Four Pillars of Financial Transparency

To establish bulletproof financial governance, NGOs must focus on three critical areas:

Understanding Audit Scope and Requirements

Audit preparation begins with a thorough understanding of the type of audit your organization is subject to:

• Public sector audits include financial, compliance, and performance audits, each with distinct objectives.
• Nonprofits handling donor-restricted funds must comply with financial statement audits, Single Audits (for U.S. federal funding recipients), and specific grantor-mandated audits.
• International NGOs may need to comply with multi-jurisdictional standards such as IFRS, IPSAS, or local statutory reporting frameworks.

Developing Robust Internal Control Systems

Strong internal controls mitigate risks associated with fraud, fund misuse, and financial inefficiencies. NGOs must implement:

• Segregation of Duties: No single individual should have control over financial transactions end-to-end.
• Multi-Tiered Approvals: Large expenditures must require approvals from multiple levels of leadership.
• Fund Management Protocols: Clear documentation of donor-restricted funds to prevent misallocation.
• Conflict of Interest Policies: Board members and senior leaders must disclose financial interests and recuse themselves from related decision-making.
• Advanced NGOs leverage cloud-based ERP solutions (e.g., NetSuite, Microsoft Dynamics) to automate financial controls, ensuring real-time oversight and reducing human error.

Creating a Comprehensive Audit Preparation Plan

Being proactive about audit readiness significantly reduces stress and improves compliance. NGOs should:

• Establish a detailed audit timeline—starting six months before the audit—to prepare key documentation.
• Ensure financial statements undergo pre-audit internal reviews to identify inconsistencies.
• Train staff on audit expectations to streamline responses to auditor inquiries.
• Conduct regular internal audits before external audits to flag and correct discrepancies early.

Ethical Conduct & Whistleblowing

• Implement a code of ethics and a confidential whistleblowing mechanism.
• Protect whistleblowers from retaliation.

Ethical conduct builds a strong organizational culture.

Practical Steps to Strengthen Transparency

Beyond compliance and audit readiness, NGOs should take the following transparency measures:

• Publish Annual Financial Reports: Make financial records easily accessible on the organization’s website, including funding sources, expenditures, assets, and liabilities.
• Subject Financial Reports to Independent Audits: Engage reputable external auditors and publicly disclose audit findings.
• Disclose Executive Compensation: Provide transparent reporting on the salaries of top leadership.
• Implement a Whistleblower Policy: Establish anonymous channels for reporting financial irregularities and ensure prompt investigation and action.
• Comply with Local Regulatory Requirements: NGOs must register and obtain necessary approvals in all jurisdictions of operation.

The Role of Expert Advisory in Strengthening NGO Financial Governance

Over the years, we have partnered with both local and international NGOs to strengthen their financial management frameworks. Our work has focused on ensuring compliance with local and international regulatory requirements, improving internal controls, and helping NGOs maintain donor confidence while staying resilient in their mission.

By implementing tailored financial strategies, NGOs have successfully enhanced operational efficiency and accountability, positioning themselves as trustworthy entities in the sector.

Read More: AI Adoption: Redefining Efficiency and Innovation in Your Business

Conclusion: The Path to Financial Integrity

In an era where financial scrutiny is at an all-time high, NGOs cannot afford to overlook financial transparency. The risk of donor mistrust, legal consequences, and operational inefficiencies is too great.

However, by adopting strong audit frameworks, internal controls, and compliance strategies, NGOs can transform audits from stressful obligations into valuable opportunities for improvement.

We encourage all NGOs to prioritise financial transparency and implement these best practices.

For NGOs looking to enhance financial transparency and compliance, expert guidance is key. If you have any questions or need further insights on financial best practices, feel free to contact us via [email protected]—we are always available to help organisations navigate financial complexities and build a foundation of trust and accountability.

Financial transparency and accountability have never been more critical for businesses operating in Nigeria. With increasing regulatory scrutiny and evolving corporate governance standards, companies—especially Public Interest Entities (PIEs) and publicly listed organizations—must ensure their financial statements reflect true and fair positions.

A robust Internal Control Over Financial Reporting (ICFR) framework is essential for achieving this. But what exactly does ICFR entail, and why does it matter now more than ever?

ICFR: A Pillar of Corporate Governance

ICFR is a system designed to provide reasonable assurance regarding the accuracy and reliability of financial statements. Effective internal control mechanisms safeguard against financial misstatements—whether due to error or fraud—and ensure compliance with financial reporting standards and regulatory requirements.

In Nigeria, the Financial Reporting Council (FRC) has established clear directives under the FRC Act 2011 (Amended 2023) reinforcing the obligation of companies to assess and report on their internal controls.

Regulatory Framework and Compliance Timelines

It is important to note that;

• PIEs must report on their ICFR for financial periods ending 31 December 2024.
• The 2023 amendment broadens the definition of a public interest entity (PIE), particularly concerning industry regulators like the NCC, NERC, and NCAA. Entities in these expanded sectors should determine whether they now qualify as PIEs.

This means that companies must not only establish strong internal control mechanisms but also demonstrate their effectiveness through external auditor evaluations.

 

Read More: Why Nigeria Is Not Classified as a Hyperinflationary Economy

 

The Business Case for Strong ICFR Implementation

Beyond regulatory compliance, a well-structured ICFR framework offers tangible benefits:

• Boosts Investor & Donor Confidence – For businesses seeking foreign investments, grants, or donor funding, demonstrating financial integrity through robust ICFR enhances credibility.
• Prevents Financial Misstatements & Fraud – In an era where corporate fraud cases continue to make headlines, effective ICFR safeguards organizations from reputational damage.
• Ensures Operational Efficiency – ICFR is not just about compliance; it streamlines financial processes, reducing inefficiencies and improving decision-making.
• Enhances Risk Management – Identifying control weaknesses early allows businesses to mitigate financial and operational risks proactively.

 

Read More: The Legal Propriety of Ungazetted Acts or Regulations in Nigeria

 

Best Practices for ICFR Implementation

To navigate the complexities of ICFR implementation, companies should consider these key strategies:

• Establish a Strong Control Environment – Leadership must set the tone at the top by prioritizing financial discipline and accountability.
• Comprehensive Risk Assessment – Identifying key risk areas in financial reporting and designing controls to mitigate them is essential.
• Leverage Technology – Automated financial systems enhance control effectiveness, ensuring real-time monitoring and compliance.
• Periodic Internal & External Audits – Independent reviews validate the efficiency of control mechanisms and help address deficiencies proactively.
• Integrate ICFR into the business operations – The effectiveness of internal control over financial reporting (ICFR) is management’s responsibility, not the board’s or the external auditor’s.
• Set up a Monitoring Committee – Establish a Monitoring Committee that will monitor the implementation of the ICFR and any changes thereon.
• Training & Capacity Building – Equipping finance teams with knowledge of ICFR principles ensures compliance and long-term sustainability.

 

Read More: Strengthening Nigeria’s Manufacturing Industry with Independent Internal Audits

 

Looking Ahead: Future-Proofing ICFR in Nigeria

As regulatory expectations evolve, companies must remain agile in their approach to financial reporting. Continuous monitoring, integrating emerging technologies, and maintaining a proactive governance culture will be essential for long-term success.

For businesses looking to strengthen their ICFR frameworks, the time to act is now. Establishing robust financial controls not only ensures compliance but also builds trust, enhances financial stability, and positions organizations for sustainable growth in an increasingly regulated business environment.

Are you prepared to navigate the evolving financial reporting landscape? Ensuring your ICFR framework aligns with best practices can safeguard your business against financial risks and regulatory challenges. Taking the right steps today can secure a transparent and resilient future.

 

 

Nigeria’s manufacturing sector contributes significantly to the economy, with 19% and 18% of GDP in 2022 and 2023, respectively. Despite challenges like currency devaluation and inadequate infrastructure, the sector remains resilient. Effective internal auditing is vital for ensuring operational efficiency, regulatory compliance, and accountability within this complex industry.

This article highlights the importance of internal audit independence and its impact on the growth of Nigeria’s manufacturing sector.

The Importance of Internal Audit in The Manufacturing Industry

Internal auditing safeguards financial integrity and improves governance by evaluating risk management and operational efficiency. Manufacturing’s intricate supply chains and regulatory requirements demand robust financial reporting and accountability.

Key roles of internal auditing:

• Risk Evaluation: Identifying gaps in processes and recommending improvements.
• Compliance Assurance: Ensuring adherence to IFRS and regulatory standards.
• Operational Efficiency: Highlighting cost-saving opportunities and reducing waste.

Read More: Financial Management Strategies for Sustainable Growth in Nigeria’s Oil and Gas Industry

Fundamentals of Internal Audit Independence

Internal audit independence ensures objectivity and reliability. It has two dimensions:

• Structural Independence: Reporting directly to the board or audit committee.
• Mental Independence: Remaining unbiased, free from conflicts of interest.

Independence strengthens corporate governance, builds trust among stakeholders, and positions companies for informed decision-making. For manufacturing firms, it transforms internal auditing from a routine check to a strategic tool for identifying inefficiencies and growth opportunities.

Efficiency of Internal Audit Independence

Independent internal auditors contribute to:

• Improved Risk Management: Focus on high-priority risks to optimize resources and reduce losses.
• Fraud Prevention: Strengthened internal controls and accurate financial reporting.
• Cost Savings: Identifying inefficiencies and ensuring regulatory adherence.

With sufficient expertise, resources, and management support, internal audit functions add immense value that outweighs their cost.

Read More: Forensic Audits: When and Why Your Business Needs One

Impact on the Growth of the Manufacturing Industry

Effective internal auditing bolsters the manufacturing industry by:

• Regulatory Compliance: Navigating complex rules to protect reputation and attract investors.
• Strong Governance: Upholding ethical standards and earning stakeholder trust.
• Strategic Decision-Making: Delivering data-driven insights for market adaptability.

A robust internal audit function signals good governance, building investor confidence crucial for sustainable growth.

Challenges and Recommendations

Maintaining the independence of internal auditors is crucial yet challenging in Nigeria. Systemic factors and organizational cultures often undermine their autonomy, compromising the quality of audits. One significant challenge is the reporting lines. Internal auditors frequently report to management rather than the board or audit committee, jeopardizing their independence and creating a potential conflict of interest.

Resource constraints and organizational culture can also impede internal auditor independence. Inadequate funding and staffing can hinder the ability to conduct thorough audits, while a culture that lacks transparency and accountability can pressure auditors to conform to management’s wishes. Additionally, management override of controls and insufficient training can further exacerbate these challenges.

Regulatory pressures and personal relationships can also threaten auditor independence. Balancing compliance demands with objectivity is difficult, and avoiding conflicts of interest can be challenging. To ensure effective internal auditing, these challenges must be addressed to safeguard auditor independence and enhance audit quality. This requires a commitment to establishing clear reporting lines, providing adequate resources, fostering a culture of transparency and accountability, and implementing robust governance structures.

Read More: Navigating Global Challenges Affecting Nigeria’s Manufacturing Industry

Conclusion

Internal auditing is essential for the success of any organization including Nigeria’s manufacturing sector. Internal auditors contribute to growth, compliance, and sustainability by providing objective insights and driving operational efficiency. As the industry expands, the importance of internal auditing will become even more pronounced.

To achieve significant success and the optimal benefit of Internal Auditing, outsourcing the function to a reputable accounting firm can enhance audit quality. External auditors offer an objective perspective and specialized expertise. At Stransact Chartered Accountant, we provide exceptional internal audit and control services while ensuring high-quality standards and independence is maintained. Send us an email at [email protected] to learn more.

Nigeria’s FinTech industry has experienced rapid growth, with over 200 FinTech companies now operating in the country, collectively valued at billions of dollars.

Major players like Flutterwave, valued at over $3 billion, and Paystack, acquired by Stripe for $200 million, have made headlines for their contributions to the digital economy. In 2023, despite a challenging funding environment, Nigeria’s FinTech sector attracted significant capital, including Moove’s $76 million funding round and M-Kopa’s $250 million raise.

However, with this rapid expansion comes the critical challenge of managing credit risk to maintain liquidity and profitability.

Credit Management in FinTech: A Crucial Component

Credit management involves practices designed to mitigate credit losses, a vital aspect for FinTech companies that extend credit to underserved markets. In Nigeria, where traditional credit histories are often lacking, FinTechs rely on alternative data—such as mobile usage, social media behavior, and transaction histories—to assess creditworthiness. These alternative credit scoring models are crucial for minimizing defaults, maintaining a healthy loan portfolio, and ensuring liquidity.

Liquidity: The Lifeblood of FinTech Operations

Liquidity, the ability to meet short-term obligations, is essential for FinTech companies. Maintaining sufficient liquidity allows these firms to fund new loans, support operations, and comply with regulatory requirements, all of which are critical for sustaining business growth.

Impact of Credit Management on Liquidity

1.    Accurate Risk Assessment:
A robust credit management system that accurately assesses risk helps FinTech companies reduce the incidence of non-performing loans (NPLs). Lower NPLs mean more cash is available to meet operational needs, thus enhancing liquidity. By utilizing advanced data analytics and machine learning models, FinTech companies can refine their credit assessment processes, reducing the risk of extending credit to high-risk borrowers.

2.    Optimized Credit Terms:
The structuring of credit terms—such as the length of the repayment period, interest rates, and repayment schedules—directly affects liquidity. Offering shorter-term loans with regular repayment schedules can improve cash flow, ensuring that the company has sufficient funds to reinvest or meet other financial obligations.

3.    Efficient Collections Process:
Implementing efficient collections strategies, such as automated reminders and proactive follow-ups, ensures that repayments are made on time, thereby maintaining a steady cash inflow. This is particularly important in a market like Nigeria, where economic volatility can impact borrowers’ ability to repay loans.

Profitability: The Goal of Sustainable Growth

Profitability is the ultimate measure of a FinTech’s success. It is determined by the company’s ability to generate more revenue than its expenses, including the cost of managing credit risk. Effective credit management directly impacts profitability by minimizing losses due to defaults and optimizing the revenue generated from lending activities.

Impact of Credit Management on Profitability

1.    Revenue Optimization:
Proper credit risk management allows FinTechs to set competitive interest rates that attract borrowers while covering the risk of default. Despite a general decline in investment, with Nigerian and other African startups expected to face a $1.5 billion shortfall from 2022, FinTechs can still optimize revenue by segmenting borrowers based on risk profiles and adjusting interest rates accordingly.

2.    Cost Efficiency:
Technology-driven credit management strategies reduce operational costs associated with loan processing, risk assessment, and collections. The decrease in venture capital funding, which fell from $63.2 billion in H2 2022 to $52.4 billion in H1 2023 globally, underscores the importance of cost efficiency. By minimizing defaults, FinTechs also reduce the need for provisioning for bad debts, boosting profitability.

3.    Portfolio Quality:
Maintaining a high-quality loan portfolio with low default rates ensures that the majority of the interest income is realized as profit. A strong portfolio also enhances investor confidence, making it easier for FinTech companies to raise capital at favorable terms, further supporting profitability.

Challenges and Opportunities

Regulatory Landscape:

The Nigerian regulatory environment for FinTech companies is still evolving. While the Central Bank of Nigeria (CBN) has introduced guidelines to promote responsible lending practices, regulatory uncertainty remains a challenge. Adhering to these regulations can increase operational costs, impacting both liquidity and profitability. However, it also presents an opportunity for FinTech companies to differentiate themselves by demonstrating strong governance and compliance.

Economic Volatility:

Nigeria’s economic environment, characterized by inflation, currency fluctuations, and inconsistent growth, poses significant challenges for credit management. FinTech companies must develop flexible strategies that can adapt to changing economic conditions, such as dynamic credit scoring models that account for macroeconomic indicators.

Technological Innovation:

The use of technology, particularly in data analytics and machine learning, presents significant opportunities for improving credit management. By continuously refining credit models and adopting real-time monitoring tools, FinTech companies can better manage credit risk, thereby enhancing both liquidity and profitability.

Conclusion

Credit management strategies are pivotal in shaping the financial health of FinTech companies in Nigeria. Effective management enhances liquidity by reducing non-performing loans and optimizing cash flow, while supporting profitability through revenue optimization and cost efficiency. Despite a challenging funding environment, with a 54% decline in African startup funding and increased scrutiny from investors, FinTechs that invest in robust credit management systems are better positioned to navigate market challenges and achieve sustainable growth.

At Stransact, we specialize in providing comprehensive services to support FinTechs in managing their books, assessing risks, and offering insights for business sustainability. As the industry evolves, our expertise can help you adapt to financial pressures and maintain a strong financial foundation.

 

Written by:

Esther Yakubu

Audit Consultant

In the dynamic world of business and finance, companies often leverage debt to fuel their growth, expand operations, and invest in new opportunities. While this strategy can yield substantial rewards, it also comes with significant risks.

Highly geared companies, those with a high level of debt relative to their equity, are particularly vulnerable to various financial and economic pressures. This article delves into the vulnerabilities faced by highly geared companies, exploring the factors that contribute to their precarious positions and the potential consequences of their high leverage.

Understanding Financial Gearing

Financial gearing, or leverage, refers to the ratio of a company’s debt to its equity. A highly geared company has a large proportion of debt compared to its equity. This can amplify returns during periods of growth, as the company can invest more than it could with equity alone. However, it also means that the company must meet regular debt repayments, regardless of its financial performance.

The Double-Edged Sword of Leverage

Amplified Returns and Risks:

• Positive Side: When business is booming, the returns on investments financed through debt can significantly exceed the cost of borrowing. This leads to higher profits and potentially greater shareholder value.
• Negative Side: During economic downturns or periods of poor performance, the fixed costs of debt repayments can quickly erode profits. If revenues decline, the company may struggle to meet its debt obligations, leading to financial distress.

Interest Rate Sensitivity: 

Highly geared companies are particularly sensitive to changes in interest rates. An increase in interest rates can lead to higher borrowing costs, squeezing margins and reducing profitability. This is especially problematic for companies with variable-rate debt, where interest payments can fluctuate with market rates.

Cash Flow Pressures:

Maintaining sufficient cash flow to cover debt repayments is crucial for highly geared companies. Any disruption to cash flow, such as a decline in sales, increased operating costs, or delayed payments from customers, can jeopardize the company’s ability to service its debt.

Vulnerabilities in Economic Downturns

During economic downturns, highly geared companies face heightened risks. Reduced consumer spending, lower demand for products and services, and tighter credit conditions can all impact their financial stability. The following factors exacerbate their vulnerabilities:

Decreased Revenue:

Economic slowdowns often result in decreased revenue for businesses. For highly geared companies, this can be particularly damaging, as they still need to make regular debt repayments despite reduced income.

Credit Market Tightening:

In times of economic uncertainty, lenders may become more risk-averse, tightening credit conditions and making it harder for companies to refinance existing debt or secure new financing. This can lead to liquidity issues and increase the risk of default.

Asset Devaluation:

Economic downturns can lead to a devaluation of assets, particularly those used as collateral for loans. This can trigger margin calls or demands for additional collateral, further straining the company’s financial resources.

Long-Term Consequences

The long-term consequences of high gearing can be severe. Companies that are unable to manage their debt effectively may face insolvency, bankruptcy, or forced restructuring. Even if they avoid these outcomes, the need to prioritize debt repayments can limit their ability to invest in growth opportunities, innovate, and compete effectively in the market.

Mitigating Risks

To mitigate the risks associated with high gearing, companies can adopt several strategies:

Diversified Financing:

Diversifying sources of financing, including equity and long-term debt, can reduce reliance on short-term borrowing and provide more stability.

Prudent Debt Management:

Implementing robust debt management practices, such as regular monitoring of debt levels, interest rates, and repayment schedules, can help companies stay on top of their obligations.

Strong Cash Flow Management:

Maintaining healthy cash flow through efficient operations, effective receivables management, and cost control is critical for meeting debt obligations.

Contingency Planning:

Developing contingency plans for economic downturns, including maintaining cash reserves and flexible financing arrangements, can provide a buffer against financial shocks.

Retained earnings: 

Instead of relying on debt financing, companies can use their retained earnings to finance operations and investments. This approach reduces dependency on external debt and interest payments, allowing for more sustainable growth and financial flexibility.

Conclusion

While leveraging debt can offer significant growth opportunities, it also exposes companies to substantial risks. Highly geared companies must navigate a delicate balance between maximizing returns and managing vulnerabilities.

By understanding the risks and implementing sound financial practices, companies can mitigate the dangers of high gearing and position themselves for long-term success.

Non-profit organizations (NPOs) play a vital role in Nigeria’s social fabric, addressing critical issues like poverty alleviation, education, healthcare, and environmental protection.

However, these organizations also face a unique set of challenges that can hinder their impact and mission. These risks can include:

• Compliance issues: Failing to meet regulatory requirements can result in hefty fines, reputational damage, and even suspension of operations. Key regulations include the Companies and Allied Matters Act (CAMA) 2020, which outlines governance requirements for incorporated NGOs. CAMA mandates maintaining proper financial records, holding annual meetings, and appointing directors. Non-compliance with CAMA can lead to penalties and sanctions.
• Financial mismanagement: Fraud, embezzlement, and weak financial controls can erode donor trust and hinder an NPO’s ability to deliver its programs.  CAMA emphasizes the importance of robust internal controls to safeguard assets and prevent financial misconduct.
• Operational inefficiencies: Ineffective processes and inadequate internal controls can waste resources and compromise service delivery.

SCUML and NPO Compliance

Adding to the regulatory landscape, the Special Control Unit Against Money Laundering (SCUML) plays a crucial role in safeguarding the integrity of the non-profit sector. SCUML requires NPOs to register and report certain transactions to combat money laundering and terrorist financing.

According to SCUML’s “Final Report National Terrorist Financing Risk Assessment of the Non-Profit Organisations Sector in Nigeria” (February 2023), NPOs are considered vulnerable to terrorist financing abuse due to several factors, including:

• Cash-intensive operations: Many NPOs rely heavily on cash donations and fundraising activities, making them a target for those seeking to launder money.
• Limited resources and capacity: Smaller NPOs may lack the resources and expertise to implement robust internal controls and identify suspicious activity.
• Complex beneficiary structures: Some NPOs work with a network of local partners or beneficiaries, which can make it challenging to track the flow of funds.

 

Read More: ISA 300: A Comprehensive Guide to Effective Audit Planning

 

Risk-Based Auditing: A Proactive Approach

Traditional audit methods often follow a one-size-fits-all approach, which can be inefficient for NPOs.  Risk-based auditing offers a more strategic and targeted solution.

Here’s how it works:

Risk Assessment

A comprehensive assessment identifies and prioritizes risks based on their likelihood and potential impact on the organization’s objectives. This may involve reviewing internal controls, analyzing financial statements, and interviewing key personnel. Common areas of focus for NGOs include:

• Grant compliance: Ensuring adherence to donor regulations and restrictions, as outlined in grant agreements.
• Program effectiveness: Evaluating whether programs achieve their intended outcomes, fulfilling the NPO’s mission as mandated by CAMA’s requirement to operate for public benefit.
• Cybersecurity threats: Protecting sensitive donor and beneficiary data, in accordance with Nigeria’s Data Protection Regulation (NDPR).
• Human resource risks: Managing issues like staff misconduct or inadequate training, as outlined in Nigeria’s Labour Act.

Resource Allocation

Audit resources are then focused on areas with the highest risks, ensuring a more efficient and effective audit process.

 

Read More: Compliance as a Tool for Risk Management: Safeguarding Your Business in an Evolving Landscape

 

Benefits of Risk-Based Auditing for Nigerian NPOs

• Increased Accountability: Risk-based audits provide a clear picture of an NPO’s risk landscape, allowing for better decision-making and improved oversight by boards and management.
• Enhanced Effectiveness: By focusing on high-risk areas, auditors can identify and address potential issues before they escalate, ensuring programs and resources are used effectively and efficiently to achieve maximum impact.
• Strengthened Donor Confidence: Strong risk management practices demonstrate transparency and accountability to donors, fostering trust and encouraging continued support.
• Improved Operational Efficiency: Identifying and mitigating operational risks leads to improved processes, reduced waste, and a more streamlined organization.

 

Read More: How Does Internal Audit Contribute to Good Corporate Governance?

 

The Need for Trusted Advisors in Nigeria’s NPO Sector

While risk-based auditing offers significant benefits, implementing it effectively requires expertise and experience. Partnering with a trusted auditing firm like Stransact (Chartered Accountants) can provide NPOs with several advantages:

• Deep Understanding of the Non-Profit Sector: We understand the unique challenges and regulatory landscape faced by Nigerian NPOs.
• Experienced Risk Assessment Professionals: Our team possesses the skills and knowledge to conduct comprehensive risk assessments tailored to your organization.
• Data-Driven Recommendations: We leverage data analytics to ensure our recommendations are based on concrete evidence and best practices.
• Cultural Sensitivity: We understand the importance of cultural context and tailor our approach to the specific needs of Nigerian NPOs.

Empowering Informed Decision-Making

Beyond the audit itself, risk-based auditing empowers NPOs to make informed decisions about resource allocation and program design. By understanding their risk landscape, NPOs can prioritize activities with the highest potential impact and mitigate risks that could hinder their success.

For example, an NPO focused on healthcare services in rural areas might identify a high risk of medication theft due to weak internal controls.  A risk-based audit could recommend implementing secure storage facilities and clear staff protocols to address this risk.

Continuous Improvement and Best Practices

Risk management is an ongoing process.  Partnering with a trusted advisor can also provide NPOs with access to ongoing support and resources. This includes staying updated on the latest regulatory requirements, industry best practices, and emerging risks in the non-profit sector.

 

Download our Doing Business in Nigeria guide

 

Conclusion

Risk-based auditing is a powerful tool for Nigerian NPOs to achieve greater accountability, effectiveness, and donor confidence.  By understanding the specific risks they face and taking proactive steps to mitigate them, NPOs can ensure their valuable resources are directed towards achieving their mission and delivering positive social impact.

Contact Stransact (Chartered Accountants) today to discuss how we can help your NPO develop a comprehensive risk management framework and conduct a risk-based audit tailored to your organization’s specific needs.

Corporate governance is often perceived primarily as the responsibility of boards of directors and legal compliance officers, leading to a narrow perspective that can hinder enhancements to the governance process. Effective governance is a journey that commences with a broad, organizational outlook. Sustaining progress necessitates dedicated senior leadership, cohesive planning, synchronized execution, and ongoing monitoring.

Governance involves the integration of processes and structures designed to facilitate the achievement of an organization’s objectives. Shaped by risks influencing the organization’s ability to meet these objectives, internal audits play a pivotal role in offering unbiased assurance and insights regarding the effectiveness and efficiency of risk management, internal control, and governance processes. Internal audit responsibilities are expanding due to heightened regulatory scrutiny and executive directives to fortify controls and enhance risk management.

Business leaders increasingly anticipate that internal audit will assume a more strategic role in the governance process, moving beyond a purely tactical function. Similar to how data privacy has become a fundamental aspect of modern business, internal audits have proven to be pivotal elements of governance. However, despite these developments, internal audit remains relegated to a minor role in numerous organizations.

This article discusses the significance of internal audits as a cornerstone of corporate governance, emphasizing their potential to strengthen and contribute to the governance framework.

Internal Audit’s Role in Governance

Internal evaluates and reports on the efficacy of processes geared towards achieving strategic, operational, financial, and compliance objectives. Its effectiveness is maximized when it aligns with organizational strategies, remains uninfluenced, and operates independently. Balancing the imperative of independence with integration into the organization poses a perpetual challenge for internal audit. Upholding independence enables internal audits to provide an informed and impartial critique, suggesting improvements to processes and ensuring their implementation.
In an era marked by heightened scrutiny of business motives and ethics, a passive internal audit function is detrimental.

However, organizations also do not desire an internal auditor group that merely seeks to eliminate risks entirely. Operating independently, internal auditors possess a profound understanding of robust governance, intricate knowledge of business systems, and a drive to contribute to organizational success.

The primary challenge faced by companies and their internal auditors lies in the absence of a one-size-fits-all method to enhance corporate governance. Each organization therefore must devise a tailored solution that considers factors such as industry, maturity, business strategy, capabilities, corporate culture, and competitive position. Given the absence of a quick-fix solution for this challenge, maintaining a long-term focus on good governance becomes a paramount objective for most organizations. It is therefore imperative to seek the service of specialized firms to conduct such audits.

 

Catch the replay of our webinar on “Auditor’s Credibility and Public Confidence”

 

Insights and Value Addition by Internal Audit

Internal audit serves not only as a provider of assurance but also as a catalyst, fostering a deeper comprehension of governance processes and structures for management and the board. The insights it offers into governance, risk, and control contribute significantly to instigating positive change and innovation within the organization, instilling confidence, and facilitating informed decision-making.

The agility and dynamism inherent in the internal audit function render it an essential resource that supports robust corporate governance. Broadly, corporate governance comprises seven interconnected components: the board of directors and committees, legal and regulatory aspects, disclosure and transparency, business practices and ethics, enterprise risk management, monitoring, and communication.

Internal audit plays critical roles across all these facets of corporate governance by:

•    Assisting the audit committee in fulfilling its heightened responsibilities.
•    Participating in the organization’s disclosure committee.
•    Assessing the effectiveness of the organization’s code of conduct, ethics policies, and whistle-blower provisions.
•    Aiding in risk assessment and performance evaluation across the organization.
•    Monitoring corporate governance activities and ensuring compliance with organizational policies.
•    Facilitating improved communication with key executives such as the chief executive officer, general counsel, chief financial officer, chief information officer, and other oversight executives.
•    Evaluating the effectiveness of corporate governance activities and recommending areas for enhancements.

The rewards stemming from enhanced corporate governance extend beyond personal satisfaction or company pride. Research indicates a strong correlation between effective governance and lucrative investment opportunities. Internal audit plays a pivotal role in this process, contributing to the development of an integrated, well-planned, and progressive governance program.

 

Read More: Forensic Audits and Why Your Business Needs One

 

Conclusion

Assessing and enhancing governance policies is currently in the best interest of any organization. Conducting audits to evaluate the effectiveness of governance systems, practices, and performance demands a meticulous methodology and a comprehensive organizational perspective. Recognizing corporate governance as a guiding force, aligning the internal audit charter with the organization’s long-term objectives is crucial. Improving governance involves costs, whether in augmenting internal audit staffing, adopting Enterprise Risk Management (ERM), or cultivating financial expertise within the audit committee.

While the returns on these investments may not be immediately quantifiable, the enduring outcomes of a successful governance program encompass improved brand and reputation management, heightened market value, regulatory compliance, adherence to sound business practices, and a more stable foundation for growth. Strong governance is an integral element of a prosperous business strategy. Effective governance can bolster an organization’s competitive standing, aid in retaining high-calibre employees, attract top-notch directors, and contribute to sustained improvements in financial performance. The anticipation of enhanced stakeholder returns becomes a justifiable rationale for the undertaken investment.

At Stransact, we understand the importance of effective governance and offer tailored solutions to help companies effectively enhance governance. From conducting comprehensive audits to providing strategic insights and recommendations, our team is dedicated to supporting your organization’s governance journey.

Contact us today at [email protected] to learn more about how Stransact can assist your company in achieving its governance objectives.

In today’s complex business environment, where financial transparency and operational integrity are paramount, the role of forensic audits has never been more critical. These audits go beyond routine financial reviews, offering organizations a detailed lens to uncover irregularities, mitigate risks, and build resilience against fraud and mismanagement. But what exactly is a forensic audit, and how can it add value to your business?

Understanding Forensic Audits?

A forensic audit is a meticulous examination of financial records and transactions aimed at detecting fraudulent activities, financial misconduct, or irregularities. Unlike traditional audits that focus primarily on ensuring compliance and accuracy in financial reporting, forensic audits delve deeper to investigate potential breaches of trust, identify financial anomalies, and gather evidence for potential legal proceedings.

Forensic audits are not just tools for uncovering problems; they are proactive measures that strengthen financial governance and enhance organizational credibility. These audits are indispensable in situations that demand a high degree of precision and accountability.

When Does Your Business Need One?

Forensic audits are essential in various scenarios, including:

• Suspected Fraud or Embezzlement: When suspicions arise regarding the misappropriation of funds or fraudulent activities within the organization, a forensic audit provides the evidence needed to address the issue.
• Legal Disputes or Litigation: Businesses embroiled in legal battles can leverage forensic audits to provide robust financial evidence, either to support claims or to mount a defense.
• Mergers and Acquisitions: Comprehensive forensic audits are crucial during M&A processes to evaluate the financial health of the target entity and uncover potential liabilities.
• Regulatory Compliance: Certain industries, such as financial services, healthcare, and energy, require periodic forensic audits to comply with stringent regulations and maintain transparency.
• Investor Confidence and Due Diligence: Investors demand high levels of accountability. Conducting forensic audits helps organizations demonstrate financial integrity, fostering trust and confidence.

Understanding the Process of a Forensic Audit

A forensic audit is a complex process involving several key stages. Here, we provide an overview of this investigative procedure, emphasizing its distinctive steps:

1. Audit Planning: The initiation of a forensic audit hinges on meticulous planning. This phase necessitates a clear delineation of the audit’s objectives and scope.What specific issues warrant investigation? Are there concerns related to the veracity of the company’s financial records? It is imperative to ascertain the time frame under scrutiny and any additional suspicions or allegations. In instances where the audit is tied to legal proceedings, the auditor must also consider the evidence requisite for court presentation.
2. Evidence Collection: At the core of a forensic audit lies the meticulous collection of evidence. During this phase, auditors conduct a rigorous examination of the company’s financial records with the explicit goal of ascertaining the truth, identifying culpable parties, and quantifying financial losses. This entails the deployment of various techniques, including reconciling financial reports to detect inconsistencies and applying analytical procedures to identify irregular trends.Contemporary forensic audits significantly rely on computer-assisted research.In tandem with scrutinizing records, forensic auditors delve into the process of assembling these records. They assess internal controls, investigate the individuals with access to and authority over different facets of the records, and, if deemed pertinent, subject these controls to testing to unearth vulnerabilities.
3. Reporting Audit Results: Once the auditor has garnered a comprehensive understanding of the situation through a meticulous review of the organization’s records, they consolidate their findings into a detailed report. This report typically encompasses a written summary of the investigation’s findings, an elucidation of how any fraudulent activities transpired, and recommendations aimed at preventing future occurrences.In scenarios where legal action might be warranted, the auditor may proffer guidance on the pursuit of charges. Should legal action be deemed necessary, the auditor prepares reports tailored for court proceedings and may be called upon to provide testimony, elucidating complex financial matters in an accessible manner for non-accounting professionals.

Industry Applications

Forensic audits have broad applicability across industries, particularly in sectors where compliance and financial transparency are critical. These include:

• Financial Services: Regular audits ensure compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations.
• Healthcare: Monitoring financial practices to prevent billing fraud and ensure compliance with insurance and government standards.
• Energy and Utilities: Addressing procurement fraud and ensuring transparency in large-scale infrastructure projects.
• Public Sector: Enhancing accountability and preventing misappropriation of taxpayer funds.

Conclusion

A forensic audit is a powerful tool that can help your business uncover financial misconduct, protect your assets, and make informed decisions. At Stransact, we provide professional, personal, and customized accounting services, including forensic accounting services, to assist you in addressing these critical financial matters.

Whether you need to uncover potential fraud, evaluate an investment, or ensure your financial records are in order, our team is here to help. Contact us today at [email protected], and let’s discuss how our services can benefit your business.