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Dangers of choosing lowest bidder vs. quality Auditor

Dangers of choosing lowest bidder vs. quality Auditor

Oct 18 2015

 

Dangers of choosing lowest bidder vs. quality Auditor

The director of a free medical clinic in Columbia, SC, said the first 3 months’ revenue is allocated to his financial audit expense.  That is 25% of a nonprofit's shoe-string budget just to open the doors.  The scenario highlights the perils of making a wrong auditing decision, as most small-to medium-sized companies cannot afford to duplicate the expense.

A financial audit, also known as an independent or external audit, involves the verification of financial statements for a legal entity, with an audit opinion expressed.  It can be an expensive and labor intensive task.   Financial audits are most often driven by compliance or requirements from a governing body.  When an audit is required, an organization that finds itself partnered with an ill-fitted auditor has 2 choices: stop the current audit, reissue RFP to find new auditor; or allocate time and money to identifying issues affecting the audit and resolving with current auditor.  Either option can be very time consuming and expensive.  

The most common danger is auditor selection based solely on lowest bid.  Like most areas in life, quality has its costs.   But taking shortcuts in selecting the right auditor can leave any organization vulnerable. 

Choosing the wrong auditor can have a substantial impact.   The costs to an organization can reach up to four times the amount of the original estimate.   These additional costs include:

  • Duplication of labor and audit costs
  • Lost time
  • Legal dispute fees
  • Potential loss of grant funding or loss of loan applied for
  • Halted business operations
  • Out of compliance penalties 

Financial audits are performed by CPAs that provide audits.   Most auditors specialize in particular industries, providing their clients with better quality inspection, focused industry knowledge, faster turnaround and less labor impact. Unknown to most, CPAs spend a minimum of 40 hours annually studying the latest compliance and regulation issues as well as best practices, industry guidance, financial threats and opportunities. All with the goal of making their clients financially successful.  

Understanding a CPA’s world and challenges is one step to finding an auditor that is the best fit for your organization.  Using a platform like AuditProposal.com offers an unbiased approach and access to a larger CPA community.  Understanding who has experience auditing your industry provides a higher quality RFP process, a higher quality financial audit and over all reduce the organization's risks/exposure.  


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