Performing Local Audits

Categories: NST Advisor

When many people hear the word audit, it doesn’t bring about a good feeling. We think of some person or agency going through our lives and leaving a lot of wreckage in their wake. However, an audit can be a good thing. An audit is a very helpful and useful tool for locals and their financial officers who are entrusted with the finances. In this article, we will attempt to demystify audits while giving you the basics of the audit process.

What is an audit?

As it relates to AFGE Affiliates, an audit is an official inspection of the Affiliate’s finances by an independent body.  An audit usually includes the verification of accounts held by the Affiliate and inspection of physical assets and supporting documentation.  This ensures that all financial dealings are in order and conducted in accordance with applicable laws and the constitutions of AFGE and the Affiliate.

Why is an audit important?

An audit is required. Per Article XIX, Section 5 of the National Constitution, each local shall conduct an audit at least once a year and a certification made to the NST that such an audit has been made.  However, there is much more. An audit can help the local identify incorrect, inefficient or outdated financial practices.  An audit can also help the local uncover fraudulent acts by officers or members.  A properly conducted audit, along with financial transparency, can ease the tension of the membership. 

Who should perform the audit?

The audit should be performed by an independent body.  However, this doesn’t mean that the local must spend thousands of dollars to bring in an outside auditor.  There are a few options the local has as it pertains to performing the audit. 

The Affiliate can have an internal audit committee perform the audit.  The president can appoint 3 to 5 members to the audit committee.  To ensure independence of the audit committee, none of the members should be from the Executive Board of the Affiliate.  If the members prefer, the audit committee can be elected; unless the bylaws specifically state otherwise.  The upside of an internal audit committee is that the committee usually has a good understanding of how the union works.  However, on the downside the members of the audit committee usually lack audit expertise which could make the audit ineffective.  This can be remedied by using some of the resources that are referred to later in this article.

The Affiliate can also request that the AFGE Office of the National Secretary-Treasurer (NST) perform the audit.  Affiliates send a request to their respective National Vice President (NVP) to perform the audit.  The NVP can elect to forward the request to the Office of the NST.  This is usually a good option because the accountants that AFGE employs to perform audits are familiar with the audit process and the requirements of AFGE Affiliates.  However, the staff of accountants employed by AFGE to perform audits is small which could increase the time necessary to complete the audit.  Please note, that the NVP can a have National Representative or other personnel in the district office perform audits instead of forwarding the request to the NST. 

The Affiliate can also bring in an outside accounting firm to perform its audit.  This is usually the most expensive option; however, can have many upsides.  First, most accounting firms have experience with conducting audits.  Also, accounting firms conducting audits must follow strict professional standards to ensure the audit is complete and effective.  One of these standards require the accounting firm be independent or disclose the fact, if they’re not.  However, please make sure the accounting firm you hire has some knowledge of labor union finances.

When should the audit be done?

The audit is required to be done annually.  However, that doesn’t mean waiting until the end of the year to begin auditing.  Test work can be conducted throughout the year, on a monthly or quarterly basis, which could lessen the amount of work needed at the end of the year.

Where should the audit be conducted?

There is no required place to conduct the audit.  Where the audit is conducted is determined by the circumstances surrounding the audit.  For most Affiliates, the audit can be conducted in the union office.  However, if more convenient, the audit can be conducted at other places.

How should the audit be conducted?

The type of audit being conducted determines what procedures are performed and to what extent those procedures are performed.  However, there are three basics steps to an audit.  The planning stage is where the auditor will obtain an understanding of the Affiliate.  During this stage, the constitution and bylaws are read and key officers and employees are interviewed.  The second stage is testing.  During this stage cash accounts are reviewed to ensure that balances are correct and individual transactions are reviewed to ensure appropriateness and correctness.  The final stage of the audit is the reporting stage.  During this stage, the report is written and distributed to all necessary parties.

When it comes to the detailed procedures to complete the audit there are a couple of available resources.  The Department of Labor has a publication entitled Conducting Audits in Small Unions - A Guide for Trustees which is a 10-step audit guide.  This resource can be found on the DOL website at the following link: www.dol.gov/olms/regs/compliance/complpubs.htm.  Also, a Checklist to Conduct Internal Audit was created and posted on the NST Advisor webpage under the Resource tab.

Please remember, that all AFGE Affiliates are required to complete a Form 41 as evidence that an audit was conducted.  The Form 41 can be found on the NST Advisor webpage under the Resource tab.  As always, if you have any questions on conducting local audits, please feel free to contact the Office of the National Secretary-Treasurer at 202-639-6438.


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