Why an Israeli Nonprofit Organization Is Being Audited
When an audit of an organization is initiated, people in the organization often wonder why their Israeli nonprofit organization is being audited. This article addresses some of the reasons that may be behind such an action.
This Series of Posts
Our team of lawyers at Cohen, Decker, Pex & Brosh has experience in a variety of fields, including Israeli nonprofit law. This article is one in a series focusing on what you need to know about nonprofits or charitable organizations (an amutah or cheletz) in Israel. Israeli nonprofit organizations fall under the auspices of the Israeli Corporations Authority, and you can read about this authority in our article on the Israeli Corporations Authority or by going directly to their unit page under the Ministry of Justice.
The Reason Why an Israeli Nonprofit Organization Is Being Audited
Auditing may be spurred by complaints to the government regarding mismanagement, whether in how funds are used or how employees are treated, among other issues. If the previously mentioned reasons are behind the audit, the audit process will emphasize the relevant categories.
Audits by the Accountant General will scrutinize the use of funds for the designated project, confirming the amount used. If money remains after the project, the Accountant General will want the extra money returned. Additionally, the audit will look into whether the organization asked and received multiple funding streams from different government bodies for the same project (i.e., double funding). If mistreatment of employees is reported, all contracts, exact hours, and insurance benefits (among other things) will be accounted for, according to Israeli labor law and tax directives.
What the Audit Is Examining
All audits systematically search for adherence to proper management guidelines, namely: double signatures on every financial transaction; no double signature of checks ahead of time; signatures only by official signatories; use of funds for administration according to regulations, as a minor proportion of the total annual return; scrutinizing the actual use of funds if they match the financial report; proper use of funds relative to the normal market price of labor and services; proper use of funds relative to the official objectives; checking if the organizational institutions function properly; and searching for conflict of interest, whether by family relations or financial interests of decision makers.
If the requested documents are not provided to the auditing body, a complaint will be made to the authorities and consequences will follow, whether by cancelling government funding, financial penalties, removal of tax benefits, and suspending proper management status. If criminal action is discovered, prosecution will follow. It is important to consult with a professional legal expert to advise on preparation for external in-depth government auditing of the nonprofit corporation. Dealing with the audit process is also time consuming and comes at the cost of time and energy by the organization’s management. Once all the documents are provided to the auditor, typically additional rounds of requests for more documents, changes, and verifications will follow over a period of three to six months.
If your Israeli nonprofit organization is being audited, if you have questions about the audit process, or if you would like to discuss any other matter related to managing an Israeli amuta, please contact us.
Advocate Joshua Pex specializes in Israeli nonprofit law and would be happy to discuss the needs of your nonprofit organization with you.
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