Standard 11: Financial Statements - Make available to all, on request, complete annual financial statements prepared in accordance with generally accepted accounting principles. When total annual gross income exceeds $250,000, these statements should be audited in accordance with generally accepted auditing standards. For charities whose annual gross income is less than $250,000, a review by a certified public accountant is sufficient to meet this standard. For charities whose annual gross income is less than $100,000, an internally produced, complete financial statement is sufficient to meet this standard.
PSI does not meet this Standard because:
- Its audited financial statements were not prepared in accordance with Generally Accepted Accounting Principles (GAAP). According to the auditor's opinion in the 2008 audited financial statements "PSI has reported grants and contracts receivables and deferred grants and fees on a net basis in the accompanying consolidated statement of financial position that, in our opinion, should be reported on a gross basis in order to conform with U.S. generally accepted accounting principles."
In response to the finding, the charity stated that:
"PSI converted its financial system to a much more complex system on January 1, 2008 to accommodate the growth and increasing diversity of its operations. The conversion was much more difficult than had been anticipated and conversion issues continued throughout the year. During this time, several accounting department staff members left the organization, taking with them a significant amount of conversion and general company financial knowledge. Remaining staff were stretched very thin between vacancies, rapid organizational growth and the system conversion activities. Due to these very difficult and unanticipated circumstances, certain normal operating procedures in the accounting department were not always adhered to, resulting in the audit deficiency. Since early 2009, additional and more highly skilled financial management staff has been hired. The new staff currently is led by a new Chief Financial Officer (CFO) hired in November 2009, who has significant experience working for large, complex organizations and with financial system conversions. The new CFO will be responsible for ensuring that the audit of PSI's financial statements for fiscal year 2009 will be unqualified."
Standard 12: Detailed Functional Breakdown of Expenses - Include in the financial statements a breakdown of expenses (e.g., salaries, travel, postage, etc.) that shows what portion of these expenses was allocated to program, fund raising, and administrative activities. If the charity has more than one major program category, the schedule should provide a breakdown for each category.
PSI does not meet this Standard because:
- The detailed functional breakdown of expenses within the organization's financial statements only included one program service category. It did not include a detailed breakdown of expenses for each of its major program activities.
In response to the finding, the charity stated, in part, that:
"PSI's audited financial statements provide precisely such a breakdown for PSI's one major program category. . .PSI deploys commercial marketing strategies focused on improving the health of those most vulnerable in the following health areas--HIV/AIDS prevention, family planning, maternal and child health and malaria prevention. . . Our approach encourages our in-country offices to use commercial channels to promote multiple products and services that impact several health areas concurrently. Per the advice of our auditing firm, PSI reports on this one major program, Social Marketing."