During a talk at the Foundation for Accounting Education’s Exempt Organizations Conference on Dec. 4, New York’s acting assistant comptroller Brian Mason emphasized the right of not-for-profit organizations to receive prompt payment and contracts from the state and to be treated as a valuable part of the public service delivery system. However, he said, exempt organizations also have a responsibility to ensure that the public monies they receive are properly accounted for—and the state has been cracking down on groups that don’t hold up their end.

“You share responsibility with us in the government to [guard against] waste, fraud and abuse,” he said.
Though he acknowledged that clients in the not-for-profit sector often have a bevy of complaints—for example, that they are underfunded, encounter bureaucratic or administrative burdens and don’t always receive payment as promptly as they would like—he said it doesn’t change the fact that they are still responsible for ensuring that tax dollars are spent well and in the manner intended.

According to Mason, the comptroller’s office is eager to help organizations fulfill these duties, and has been conducting trainings with nonprofits to aid them in identifying fraud risks within their structures. In addition, he said, the office has made an effort to share detection techniques, best practices, tools and safeguards with groups.

However, just as rights are paired with responsibilities in the comptroller’s eyes, training and best practices are also paired with enforcement. As of late, Mason said, the comptroller’s office has turned a critical eye to special education nonprofits, which have been seeing an unusually high amount of waste, fraud and abuse.

Recent audits in this sector, he said, have lead to indictments of several individuals. Mason told the audience about a special education nonprofit in which the executive director’s wife was paid $610,000 to serve as the assistant executive director, even though she was employed full-time at CUNY. That arrangement, when discovered, resulted in the couple’s arrest and conviction. He also pointed to a case that took place in November, where a man who ran a special education pre-school program siphoned $1.5 million off the organization. He was charged with fraud after an audit revealed the theft.

In response to problems in this particular area, Mason said the comptroller’s office has been convening leaders for increased input and awareness. What’s more, the State Education Department has been training comptroller staff on the financial reporting requirements of special education so that they can gain a good grounding in the inner workings of such programs in order to improve their audits.

Beyond special education, Mason said that the comptroller’s office is also particularly interested in housing programs and Alzheimer’s services, which are major state-funded areas with large investments of public money.

A closer look at the process

So what happens if you’re a nonprofit organization and you find yourself audited by the state comptroller’s office? It’s quite similar to other audits. First, Mason said, expect an engagement letter that lays out details such as scope, objectives and protocol and explains who the audit liaison will be. The field work will include, “as you expect, certain substantive testing of accounts and records,” Mason added. “It will also include interviews of officials responsible for financial management and other program areas that come under the scope of the audit.”

Then, he said, expect a sit-down with agency officials, who will discuss the findings, bring attention to their concerns and make sure that the auditors took everything into consideration. This may be accompanied by additional field work, in which previous findings will be adjusted if needed, followed by the release of a preliminary report, to which the organization has the opportunity to respond. 

As the comptroller’s office finishes up its audit work, it will conduct a closing conference with senior agency officials and, again, go through its findings and give the office’s response to the agency’s response. Once that’s taken into account, the comptroller’s office will then issue a draft audit report, to which the audited agency has 30 days to respond. Thereafter, the comptroller’s office will consider whether any additional changes are needed, before a final report is issued, with the agency’s comments to the draft report appended to the document.

“Our auditing process is one that entails a number of procedures to ensure that, by the time we get to the final report, we’re pretty confident in the accuracy of our findings, conclusions and recommendations,” Mason said.

He stressed, however, that the purpose of the audit is not to “paint with a broad brush and to try to defame an entire industry or group of providers.” He said that the audit reports also highlights actions that were appropriately taken and costs that were both claimed and supported.

“If a particular provider basically has a clean audit, that’s what [the report] will say, and what the public will see,” he said. “I think that’s something the comptroller would like to share.”