All about audit certificates
What are they?
Audit certificates are a record produced each year and kept on file certifying/giving an opinion on the use of funds for which 18A receipts were issued. According to s18A(2B), a PBO which falls under section 18(2A), must obtain and retain an audit certificate. This audit certificate confirms that all donations received or accrued in the year for which they were issued were used for 18A activities.
Who needs them?
Not all 18A organisations are required to produce an 18A certificate. Only those which:
- are 18A active project organisations which carry on a mixture of 18A and non-18A work and;
- 18A donor organisations which fund a mixture of 18A-qualified organisations and ‘other’ organisations.
This means that an audit certificate is only needed if you have a mixture of 18A and non18A projects by the organisation or donations made to 18A and non-18A qualified beneficiary organisations.
Who issues/creates them?
Despite its name, an audit certificate does not have to be produced by a qualified auditor, but by an independent, suitably qualified person who has done the appropriate work to enable verification. This would be, for example, an independent auditor, independent accountant, or independent bookkeeper.
Note: donor/conduit organisations:
For donor organisations required to provide an audit certificate, the certificate should also indicate whether the ‘retention limit’ has been complied with. This is about what is left of what used to be called the ‘75% rule’ (historically, all tax-exempt entities were required to spend 75% of funds within the following year). In its reduced state, this rule:
- Only applies to donor organisations (not to active project organisations);
- Only applies to funds for which 18A receipts have been issued; and
- Now only requires that 50% is on-donated.
What do we do with the audit certificate?
Once an organisation has an audit certificate, it must be kept on record for a minimum of 5 years and produced if SARS calls for an audit. If the organisation has been notified about an audit and the 5-year period has expired, the certificate must be kept until the audit is completed. Similarly, if the organisation has returns outstanding, the audit certificate must be kept until that return is submitted.
As a rule, do not submit the audit certificate with the organisation’s income tax return, but make sure that it is kept safe.