Let’s explore the Audit Report
Edward P. Salek, CAE, Executive Director | TLT Headquarters Report December 2021
Hey, give us a chance before you turn the page!
Compared to the colorful and informative content in TLT, STLE’s Audit Report for fiscal year 2020-2021 is a drab looking 24 pages of facts and figures. So, why write a column about a document that includes phrases like
material adjusting journal entries and
earnings before interest taxes and depreciation? Put simply, the audit report fulfills a legal requirement, provides confidence in the organization’s financial management and offers insights into STLE’s operational efficiency and priorities.
The report is based on a comprehensive review of STLE’s books by the Chicago-area accounting firm of Selden Fox Ltd. The firm has received the highest ranking possible in an annual peer review conducted by the American Institute of Certified Public Accountants (AICPA). This means that in AICPA’s opinion, Selden Fox meets the quality control and professional standards established by that body. Eight STLE Directors and staff members who serve on the STLE Audit Committee worked in cooperation with the Selden Fox team in the review of financials for the period from July 1, 2020, to June 30, 2021.
Completion of the report, which was presented to the STLE Board of Directors at its fall meeting, meets an important requirement established by Illinois, where STLE is incorporated as a not-for-profit entity. In Illinois, a certified audit is required if the nonprofit has gross revenue that exceeds $300,000. STLE’s annual revenue is slightly less than 10 times that amount.
In reporting to the board, Selden Fox gave STLE what is known as an unmodified opinion. This is the best that can be obtained and could be equated to a classroom grade of A+. In commenting on that opinion, the auditors wrote, “The fact the audit did not generate a significant amount of material adjusting journal entries from ongoing activities should give confidence to the Committee and Board that the STLE staff is producing accurate financial information both at year end and on an interim basis.”
Board members can be confident that the financial data presented by staff is accurate and representative of the organization’s status. This is critical, because the information is used to make decisions about spending and to evaluate programs.
The annual financial audit also paints a picture of how the organization uses its resources. For example, general and administrative costs (often referred to as overhead) account for 16% of total expenditures. In the not-for-profit world, overhead costs below 20% of expenses is considered as the standard for an efficient and productive organization.
This lean 16% figure means that 84% of expenditures are used for programs and services of direct benefit to members and in support of the STLE strategic plan. Here’s a look at how spending is divided among major categories:
As STLE and the world in general continue to emerge from the disruptions of the past two years, much uncertainty still exists. Balancing that is the fact that, based on conclusions from the latest audit, STLE is in overall good financial condition, has sufficient liquidity to meet operational expenses for the upcoming year and has been able to maintain its investment reserves despite the pandemic.
So, the story behind the annual audit has a happy ending. Thanks for sticking around to read it and for the loyal support provided to STLE by the tribology and lubricants community.
You can reach Certified Association Executive Ed Salek at esalek@stle.org.