INTERVIEW
Accountability in God's Treasury
LRE: How did you get started in auditing? Is this something you always dreamed about doing?
PHD: When I was growing up in Jamaica I had an interest in becoming a chartered accountant. Although I studied sciences in high school with the intent to attend medical school, when I enrolled in college there was some level of indecision. A teacher friend of mine suggested I try bookkeeping. I tried it, got an A-grade in the class and have stayed with accounting ever since. I am now a certified public accountant and also hold a graduate degree in accounting. Upon graduation from college, the General Conference extended an invitation for me to join its auditing service (GCAS), and I have been serving now for 29 years in various professional capacities.
LRE: What does GCAS do?
PHD: The purpose of GCAS is to conduct structurally independent financial audits, financial reviews, financial inspections and compliance tests of the highest quality for church organizations. Let me define what I mean by structurally independent – All the auditors are employees of the General Conference and are not employees of any of the church organizations to which we provide our services. So though we are a part of the Seventh-day Adventist Church family, the auditors perform their work in an independent manner.
The purpose of GCAS is to conduct structurally independent financial audits, financial reviews, financial inspections and compliance tests of the highest quality for church organizations.
LRE: How many auditors are there in GCAS?
PHD: There are approximately 275 professionals around the world. These professionals are grouped into five geographic areas and operate from 45 regional offices. Sixty-four percent of these auditors hold a professional designation such as CPA, CA or ACCA, while the rest are in the process of working on their designation.
LRE: How does auditing help the evangelism or the mission of the church?
PHD: When the tithe is returned and offerings are given, the auditor implements certain procedures to ensure that the resources that have been received have been used for their intended purpose and the reports produced appropriately reflect the financial activities and financial position of the organization. This presence of an auditing function enhances the confidence of constituents that translates in their willingness to make continued contributions in support of evangelism or other mission based activities.
LRE: Do you see any link between what the auditors do and stewardship?
PHD: Yes, I do! There are different aspects of stewardship. From a financial perspective, a person’s obedience to what God requires of them regarding tithe and offerings is complemented by the confidence that what they have given to the church will be used for the intended purpose. Stewardship does include a principle that at some point the steward will be held accountable for what has been entrusted to him or her. The work that auditors perform is consistent with that principle. It holds church leaders accountable for the financial resources with which they have been entrusted.
LRE: Are audits really necessary for a church organization?
PHD: I do believe audits are not only necessary but also beneficial for a church organization. Just because we are a religious organization we are not immune from human error that can be either accidental or intentional. Audits of our church organizations provide confidence to management and governing boards as they make decisions based on independently verified financial information; and confidence to constituents and other stakeholders in their economic decision to make financial contributions. Although auditing comes at a cost, it is best viewed as an investment so that church leaders can have the best available information to make decisions. By its very presence auditing can also serve as a deterrent to nefarious financial activities.
A natural human instinct is to reject somebody looking over his or her shoulder. Although this natural human instinct could lead to tension, I believe for the most part the audit process is a collaborative effort with its purpose understood.
LRE: You mentioned the word “accountable.” Doesn’t that create a bit of tension and apprehensiveness when an auditor shows up?
PHD: A natural human instinct is to reject somebody looking over his or her shoulder. Although this natural human instinct could lead to tension, I believe for the most part the audit process is a collaborative effort with its purpose understood. Most view the auditing process as participation in God’s expectation of us being faithful stewards for the resources entrusted to us to carry out His work. We are all part of a work to which God has called us—some to preach, some to teach, some to evangelize, some to prepare financial statements and some to audit financial statements. When we respect each other’s role as part of our shared purpose, whatever tensions may exist because of our natural instincts fade away. We consider the auditing service as a ministry of the church that shares the common purpose of reaching the unreached for Christ. At the same time we are being faithful in our stewardship of the resources entrusted to us to pursue this purpose.
LRE: What authority does an auditor have?
PHD: The auditor has no authority to compel any action. The auditor only reports the findings and provides an opinion. This report is provided to management, their governing board and constituents who have the responsibility to ensure that any reported findings are addressed.
LRE: Does the General Conference itself have to go through an auditing process?
PHD: Yes, the General Conference receives an annual financial audit that is performed by an external accounting firm. It is not appropriate for GCAS to perform the audit of the General Conference because we are its employees.
LRE: In an audit, do you address the issue of possible conflicts of interest?
PHD: A conflict of interest occurs when there is a collision between the business interests of the organization and the business interests of an individual. As part of the audit engagement, we do examine whether or not individuals have signed a conflict of interest statement, declaring the presence or absence of any conflicts of interests. It is then the responsibility of the church organization to determine its response regarding any conflict declared. A conflict of interest does not mean that somebody has done something wrong. However, the church expects conflicts of interests to be declared and that persons having declared a conflict would remove themselves from any action in response or in relationship to any conflict that exists.
There are approximately 2500 church organizations within our portfolio. Based on our latest annual report, we are attending to 69 percent of this portfolio.
LRE: How many audits does GCAS do each year and what percentage of these audits receive a “clean” report?
PHD: There are approximately 2500 church organizations within our portfolio. Based on our latest annual report, we are attending to 69 percent of this portfolio. Of those organizations to which we provided auditing services, 58 percent received an unqualified opinion (“clean report”) on their financial statements. Most of the remaining financial statements received a qualified opinion, indicating they were fairly stated, except for a specific misstatement or a lack of evidence to verify a specific amount. We recently concluded financial arrangements so that there will be sufficient resources available to hire the staff needed to address all the organizations in our portfolio. Our goal within the next three to four years is to have 100 percent of church organizations in our portfolio audited each year.
LRE: In recent years, some financial organizations in the corporate world have been devastated by unethical actions of some leaders within their own organization. Do you have any counsel for operating boards within our own organization to help us avoid those kinds of accusations?
PHD: My counsel to operating boards would be for them to set and expect a tone of transparency and accountability throughout their organization. To complement this tone, the operating board should first design, document, implement, communicate and monitor internal controls that are appropriate to the size and complexity of the organization; and second, establish an audit committee comprised of persons who are not employed by that particular organization, who have a good grasp on financial reporting matters, and are not afraid to ask probing questions. With this tone and these governance mechanisms in place, I believe operating boards are better able to insulate against accusations born out of the absence of information and to prevent or detect unethical actions by any leaders.
LRE: As you review the financial systems of the church, with its checks and balances, do you feel it should be an encouragement to our members?
PHD: I believe it should. I believe the Seventh-day Adventist Church sits in a premium position compared to other church denominations, based on the systems that are in place for checks and balances. GCAS is part of that system and we are proud to serve the church in the capacity we do. I do not know of any other church denomination that has such a robust global audit function as our Seventh-day Adventist Church does. So, yes, I think every church member, should take delight and pride in the fact that their denomination has systems in place to safeguard the resources God provides and to ensure they are applied to their authorized and intended uses.
