The legal audit is analogous to the periodic medical checkup. Its purpose is to spot legal problems and deficiencies and to address them before significant damage is done.
The legal audit for a religious institute generally includes the following steps. As the process unfolds, the team performing the audit may discover problems or deficiencies which will warrant further investigation or some remediation.

  1. Assemble the Audit Team - this generally includes a few key players within the organization, someone with the time and skills to move the process forward, and some outside professionals. Leadership, treasurer, team members and professionals should decide the timeline for the review and those who will carry the principle responsibilities for it. There should be designated progress points when the Audit Team can meet to review its work. It may be necessary to modify the scope of the audit and its timeline as the process unfolds.
  2. Assemble basic legal documents of the organization: Canonical documents, minutes and reports, Civil organizing documents, minutes, financials and reports for all corporations. Most recent required reports.
  3. Review documents to determine that they are all current and compliant with applicable business entity law.
  4. Review federal tax status of entities and organizational and operational compliance with tax law. Determine reporting requirements and compliance therewith, esp 990, 1099, UBIT, etc.
  5. Audit civil and canonical documents of members: sacramental records, records of vows, will, renunciation, cession, remuneration, healthcare declaration, power of attorney, immigration, education, employment history, medical records.
  6. Audit employee records: detemine compliance with recordkeeping laws, payroll and tax requirements, employment discrimination, hiring and firing practices.
  7. Determine compliance with other federal and state requirements: Postal laws, securities, grants, civil rights, charitable solicitation, sales and use taxes, franchise taxes, property taxes.
  8. Review insurance and risk management: ensure appropriate coverage and compliance with policy requirements. Identify risks and review management of them.
  9. Review document management and retention policy and compliance.
  10. Review real property - locate deeds, ensure appropriate description of land and improvements, registration, tax and insurance, land restriction and encumbrances. Review leases.
  11. Review or establish tickler file with important compliance dates and deadlines.
  12. Audit Report generally includes points that require followup. Simple problems and deficiencies can be addressed as the audit is carried out. In addition some critical deficiencies will require immediate attention due to the nature of the problem. However, it is important to realize that fixing every problem when it is discovered will impede the progress of the audit and may completely frustrate its completion.

Amy Hereford is available to assist religious institutes in exploring and carrying out the legal audit process. It may be especially helpful when the institute, society or monastery faces major moments or changes in its life.