Internal audit of trust

This query is : Resolved

Report Abuse Follow Query Ask a Query

Querist : Anonymous

Querist : Anonymous (Querist)

21 June 2017 Hi ,

Can anyone suggest how to do internal audit of trust?

Aswath Raman

Aswath Raman (Expert)
Follow

24 June 2017 Specify the nature of trust and the operations.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

01 August 2024 Conducting an internal audit of a trust involves examining its financial operations, compliance with statutory requirements, and effectiveness of internal controls. Here's a comprehensive guide to help you perform an internal audit for a trust:

### **1. Understand the Trust's Objectives and Structure**
- **Trust Deed Review:** Begin by reviewing the trust deed to understand the trust’s objectives, governance structure, and specific provisions related to financial management.
- **Trust's Activities:** Familiarize yourself with the trust’s activities, sources of income, types of expenses, and its overall financial framework.

### **2. Document Collection**
- **Financial Statements:** Collect financial statements, including balance sheets, income and expenditure statements, and cash flow statements.
- **Bank Statements:** Obtain bank statements for all accounts held by the trust.
- **Receipts and Payments:** Gather documentation related to all receipts and payments, including invoices, receipts, and vouchers.
- **Trustee Meeting Minutes:** Review minutes of trustee meetings to understand decisions affecting financial management.

### **3. Internal Control Evaluation**
- **Internal Control Systems:** Assess the internal control systems in place, including authorization processes for transactions, segregation of duties, and physical controls over assets.
- **Compliance Checks:** Verify compliance with legal and regulatory requirements, including income tax regulations, charity laws, and any specific regulations applicable to trusts.

### **4. Verify Financial Transactions**
- **Income Verification:**
- **Source of Funds:** Confirm that all sources of income are legitimate and properly recorded.
- **Deposit Reconciliation:** Reconcile bank deposits with recorded income.
- **Expense Verification:**
- **Document Review:** Ensure that expenses are supported by proper documentation and authorized by the trustees.
- **Payment Reconciliation:** Reconcile payments made with bank statements and recorded expenses.

### **5. Asset Management**
- **Asset Register:** Verify the accuracy of the asset register, including fixed assets and investments.
- **Physical Verification:** Perform a physical verification of assets to ensure they match the asset register.
- **Depreciation:** Check that depreciation is accurately calculated and recorded.

### **6. Compliance and Taxation**
- **Tax Filings:** Ensure that the trust is compliant with tax filings, including income tax returns and any other statutory obligations.
- **Exemptions and Deductions:** Verify that any tax exemptions or deductions applicable to the trust are correctly claimed and documented.
- **Regulatory Compliance:** Ensure compliance with regulations specific to trusts, such as the provisions under the Income Tax Act, 1961, or relevant state laws.

### **7. Review of Internal Controls**
- **Control Procedures:** Assess the effectiveness of internal controls, including authorization procedures, reconciliation processes, and safeguarding of assets.
- **Risk Management:** Identify any weaknesses in the internal control system and recommend improvements.

### **8. Reporting**
- **Draft Internal Audit Report:** Prepare a report detailing the audit findings, including any discrepancies, compliance issues, or areas for improvement.
- **Scope of Audit:** Clearly define the scope and objectives of the audit.
- **Findings and Observations:** Include specific findings and observations related to financial management and compliance.
- **Recommendations:** Provide actionable recommendations for improving internal controls and financial management.
- **Discuss with Trustees:** Present the audit report to the trustees, discuss findings, and address any questions or concerns.

### **9. Follow-up**
- **Action Plan:** Work with the trust to develop an action plan to address any issues identified during the audit.
- **Monitor Implementation:** Follow up on the implementation of recommended changes and improvements.

### **Checklist for Internal Audit of a Trust**

1. **Pre-Audit Planning:**
- Review the trust deed and relevant documents.
- Understand the trust's objectives and operations.

2. **Financial Records:**
- Verify income and expense records.
- Reconcile bank statements with recorded transactions.

3. **Internal Controls:**
- Evaluate control systems and procedures.
- Assess compliance with statutory requirements.

4. **Asset Management:**
- Review asset register.
- Perform physical verification of assets.

5. **Tax Compliance:**
- Ensure proper tax filings.
- Verify exemptions and deductions.

6. **Reporting:**
- Prepare and present the audit report.
- Discuss findings with trustees and provide recommendations.

7. **Follow-Up:**
- Develop an action plan for addressing issues.
- Monitor the implementation of recommendations.

By following these steps, you can ensure a thorough and effective internal audit of a trust, providing valuable insights into its financial health and compliance with regulations.

Upgrade to CAclubindia Pro. Subscribe Now!