ERICK A. KORFF Director

Why does the Seventh-day Adventist Church need an audit function? What benefit does it derive from the effort of almost 200 auditors around the world? Couldn’t the financial outlay maintaining the function be spent more profitably on the direct mission of the church?

What Is an Audit?
The primary purpose of a denominational financial audit is the verification and validation of the financial activities and information reported by an organization’s management. That organization may be a division, union, conference, mission, field, university, college, school, Adventist Book Center, or any other type of approximately 2,400 church entities. A secondary objective is to verify that the financial activities tested comply with denominational policies. The results of this work are an opinion on the financial statement, a report on policy compliance, a report to management and to regularly called constituency meetings, and in North America, a report on compliance with trust accreditation standards.

Why Are Verification and Validation Necessary?
Constituencies delegate their authority to denominational boards, committees, and administrators who serve them in a fiduciary capacity. Administrators deserve an independent evaluation of their financial reports; an independent audit provides that validation. Similarly, constituencies are entitled to an independent report on the manner in which their administrators have acquitted themselves of their fiduciary responsibilities.

Other Users of Denominational Financial Statements
Administrators of senior denominational entities use audited financial statements for a variety of purposes, including financial planning, statistical reports, determining the level of financial self-sufficiency of junior organizations, and evaluating the readiness of administrative entities for promotion to the next level.

In certain parts of the world nondenominational third parties, such as financial institutions and regulatory agencies, require independent audit reports. Financial institutions use them to decide, for example, whether or not to extend credit or grant mortgage loans. Regulatory agencies use them to determine to what extent the financial requirements of contracts have been complied with.

Independent Function
As General Conference Auditing Service (GCAS) auditors are employees of the General Conference, and not of the entities being audited, they are independent vis-à-vis those entities. Therefore, GCAS is an internal function of the denomination, but external to the entities it audits. General Conference Working Policy provides that (a) GCAS does not audit the General Conference itself: that audit is performed by a church member in public practice, and (b) all denominational organizations above the local congregation be audited by GCAS. Second, the Working Policy requires GCAS auditors to perform their work in accordance with the same standards auditors in public practice are required to use.

Professional Competency
GCAS employs professionals who have attained the highest professional status possible. Moreover, GCAS auditors are expected to complete continuing professional education requirements annually. Since GCAS auditors focus on and perform only denominational audits, this General Conference service is able to specialize in a specific niche. GCAS uses a standardized audit approach and common audit software worldwide. An independent peer review in 1998 in accordance with American Institute of Certified Public Accountants’ standards confirmed that GCAS conformed to the standards of the profession.

Audit Function a Service to the Church
Administrators need the protection of an independent audit, constituents deserve assurance that financial resources have been disposed of in accordance with church policies, and senior denominational organizations and third parties require affirmation that the financial statements they are basing decisions on are a fair presentation of an entity’s affairs.

The ultimate advantage to the church of incurring the cost of the audits is that they create confidence and foster credibility. That in turn encourages faithful stewardship and generosity. Since GCAS auditors are paid in accordance with denominational wage rates, this independent service is provided to the church at large at a cost that is significantly less than what it would be if it were purchased at market rates from auditors in public practice. The audit function is a service to the entire church at all levels in order to strengthen the direct mission of this movement of destiny.