Note: This transcript has been edited for flow, clarity, and readability. 

[00:00:00] Lucía Carrasco: In this episode, we'll share the experience of a financial leader who has been on both sides of the story, auditing and being audited. We'll find out how to sleep better and navigate these processes with peace of mind.

[00:00:18] I'm Lucía Carrasco, and you're listening to Grit, Mission, and Numbers, a podcast where we hear from finance practitioners working for social change and the stories behind the numbers.

[00:00:30] Today, we're talking with my namesake, Carmen Lucy Albarracin from Bogota, Colombia. Lucy is a certified public accountant. She has experience in international cooperation projects, accounting for civil society organizations, and currently works for a Colombian government agency, and also collaborates with local organizations such as Fundación Sentido and El Veinte.

[00:00:53] Plus, in the recent past, Lucy served as an auditor. Welcome, Lucy. It's great to see you here today.

[00:01:09] Lucía Albarracín: Thank you very much, and I hope that our talk will encourage everybody listening and give them another example of how to do this finance and civil society work.

[00:01:25] Lucía Carrasco: I would love to hear from you about your experience and what it's like to be a female auditor in Colombia. And what has been to this day your biggest lesson learned?

[00:01:37] Lucía Albarracín: My first audit when I was the lead auditor, the senior one, I started very young, and I built my career. And then when I introduced myself to the company's legal representative, he was like, "Are you the person who's going to audit me?" And I said, "Yes. Yes, I'm the senior auditor. You're going to talk to me." Of course, he was older than me, and he was like, "Well, okay, we'll be here for whatever you might need." But it felt like, "I don't believe that you, so young, are going to audit me." and so you feel the customer's distrust when they see you, like they're expecting a different person and they're thinking, "No way."

[00:02:23] Lucía Carrasco: They saw you, they judged you, and maybe they thought, "Who knows what this girl is going to say?" And they had no idea what was coming their way.

[00:02:35] Lucía Albarracín: They didn't even imagine it. It was a mutual learning experience. Appearances can be deceiving, so that's something very important because, as an auditor, one also learns from that. We arrive at organizations that seem to have everything in place, then you start looking into it, and it turns out that's not the case. And so the learning is that the work we do, it always has to be done with a commitment to transparency and very good communication. It might seem like communication is not connected to finance, but really, it is. It's something that is very important, even more so in the context of auditing.

[00:03:19] Lucía Carrasco: The communication you're referring to, is it internal to the organization? Is it with the auditor?

[00:03:34] Lucía Albarracín: For the auditing process, it's the gap that exists between the technical and the financial pieces. It's hardly ever discussed. The same thing happens during project implementation. I mean, if were the only person in the organization who negotiated and you accepted the project terms as they were, when you need to implement these terms and bring in the administrative and financial departments, disagreements may begin to arise, such as, "We can't do this because our tax accounting system has limitations," or "Because it has to be this way financially," or "We have restrictions due to regulatory requirements." So that's where disagreements begin to arise, and most likely, future findings or audit observations, because this was not discussed from the beginning. If you think about it, it's just about communicating. And by communicating well, I believe we mitigate most of the institutional risks that can occur when implementing or executing a project.

[00:04:39] Lucía Carrasco: And we're really lucky today because you have those two sides of the story. You started as an auditor and then moved over to work with civil society organizations. How was it the first time you dealt with an auditor when you met that person?

[00:05:03] Lucía Albarracín: What I felt was like an emotional crash. It was like a personal realization. I said to myself,

[00:05:10] Seriously, that's how I was? That's how people saw me when I arrived at organizations?" I did see myself reflected in them a little, but also the emotional crash was like, "Oh, that's awful," because we arrived with this arrogance and harshness, like we're going to be judged.

[00:05:30] Show me what you have. It's a bit of a feeling of absolutism and knowing it all, a sense of arrogance on the part of the auditor. So let's just say it was like, "No, this has to change. We have to do it differently."

[00:05:49] Lucía Carrasco: Building on that, I mean, there is a fear of the auditor, of the audit team, within civil society organizations. I've heard many leaders tell me things like, "We don't sleep when we know the audit is coming."

[00:06:05] Lucía Albarracín: You can always mitigate that fear, that nervousness of being audited, because ultimately, the audit is meant to confront you with decisions you've made from an institutional perspective, right? You have to take your time so that everything goes well, so that when the auditor has questions, they can be answered as quickly as possible. But the truth is, to mitigate the other issues and to support the audit process, you should be able to create an initial internal plan to mitigate anything that might slip through during the audit, like a mini internal pre-audit, which can also give you some peace of mind while the actual audit is in process, right?

[00:06:49] Lucía Carrasco: I love what you say about the importance of peace of mind, but above all, this part about doing your own exercise with your team, a kind of audit, because it has to do a lot with changing the organizational culture around what this process means and how to prepare for it collectively.

[00:07:12] Lucía Albarracín: The ultimate goal of the audit is to give donors confidence to continue providing resources and to strengthen my organizational ability to better manage these resources so that they continue to sustain the organization. When you have an audit, you should be able to show you have policies in place for purchasing matters, for travel matters, for

[00:07:32] fees and rates...with those in place, you can minimize the risk of the use of resources on things that were not part of the project. And if your organization is able to establish these from the beginning, then at least eighty percent of the findings that can arise during the audit have been mitigated.

[00:07:55] Lucía Carrasco: And yes, sometimes we lose sight of the relevance and importance of the audit as an exercise to validate where we are, how we are doing, and what opportunities for improvement exist. But it's also true that there are traumatic experiences. I'd like to know, Lucy, if you can share with us what has been your worst experience with an audit and why?

[00:08:21] Lucía Albarracín: I had several foreign audits, meaning the donor, who is a large donor, hires a foreign firm to do the audit, and they go and check, but many lack country context. That's when you really don't sleep because it's like I am complying with everything, and in my book, it's clear within my local national context, right? But then the auditors are telling you that isn't the case. No. And they're doing this well simply because they have a different background and a different set of guidelines from which they are auditing me. It often happens that nonprofit organizations in Colombia have very different characteristics from those in other countries. That negotiation to explain a practice that's common here, but that people elsewhere don't understand, and that it might lead to a discovery, that won't let me sleep.

[00:08:36] Because at the end, it is really about the auditors not understanding the local context. And so you're left in there feeling like you just don't know how else to explain it. On one of these occasions, we reached out to the donor, and we were like, "Look, we're having problems with the auditing firm. If that company has a subsidiary in Colombia or a partner firm, please connect them because we are not understanding each other." And I think that flexibility within the donors themselves is really important. That support from donors who genuinely want to support the people receiving their resources to become a well-established organization is very important.

[00:09:47] Lucía Carrasco: Yes, and that's precisely why it's key to be able to establish relationships that go beyond the transactional with our donors, right? To be able to navigate towards a relationship that is more transformational, where we are working as allies in partnership and as equals to achieve change, which is ultimately why we're receiving, managing, and using these resources.

[00:10:18] Lucy, if an organization receives observations year after year and keeps dragging their feet on resolving them, based on your experience, what could be happening there?

[00:10:38] Lucía Albarracín: There are two ways to look at it. One is the importance of the donor's ability to understand what's happening, and the other is the level of change and opportunity for improvement that the organization is able to see through the audit.

[00:10:53] Humans tend to resist change, so from the organization's perspective, it might be that they're not convinced that the observation or the proposed improvements are relevant.

[00:11:03] And there, I believe that the executive management of the organization does have a percentage of the responsibility, right? And they can seek support. It's all about finding solutions and telling the donor in a frank conversation, "Look, I know, and I understand how to go about some of these things, but I don't know everything. I need support with more financial tools. Because what also tends to happen in nonprofit organizations, since they are so small in many cases, is that the administrative team is one or two people doing everything.

[00:11:46] Lucía Carrasco: You touch on a super interesting topic that could easily be the subject of a series of podcasts, not just one episode, which is about resistance to change, right? We're very much ready to keep working at our own pace with our own processes and systems, and it is a real challenge to shift and change ways.

[00:12:06] In the FIRE program, we see how difficult it can be for teams to change their ways. But we also see that when teams manage to move, to get out of that place where they're stuck, great opportunities open up. And speaking of opportunities and improvements, given what you've seen in the field, what are the issues where you would say communication is not entirely clear between donors and a civil society organization, and which may lead to findings or observations in audits?

[00:12:43] Lucía Albarracín: When I was working at an organization, it was often the case that we weren't clear about how to deal with a one-time payment of a grant. When the donor wires you one hundred percent of the donation upon signing the agreement, but obviously, you're not going to execute all the resources at once. So organizations keep the resources in a dedicated bank account. But nowhere in your contract or appendices does it say whether the interests produced are the organization's or the donor's. So let's say that in those cases, one always has to go to the donor and say, "Look, Mr. Donor, what do we do about this?" And if you have any doubts or questions about whether you can or cannot do something with the money, and you don't find any indication in the guidelines or the roadmap provided by the donor, well, then you have to raise your voice and ask. Fortunately, on many occasions, donors allowed us to keep the profits.

[00:13:41] Lucía Carrasco: It also makes me think about the exchange rate, um, which is also an issue that isn't necessarily specified. What do you do if you generate a gain or if you end up losing with the exchange rate?

[00:14:00] Lucía Albarracín: That type of exchange rate differential is one of the most frequently recurring findings in audits. This is partly because there are different ways to view it, and partly because sometimes it's not even reported. There are donors who say, "Inform me as soon as you receive the money so I know exactly how much it was." Because these inform their financial reports, and they also need to know what rates they're operating at. There are others that give no specific instructions.

[00:14:30] Lucía Carrasco: We have also seen, Lucy, that there are organizations that when they receive observations through their auditing processes, they spring into action and try to resolve this by creating a series of policies, plans, which, well, are usually not tailored to their organization or context. They are, um, let's say, overnight fixes

[00:14:57] Lucía Albarracín: Yes. In fact, it happens quite often because we go from extreme to extreme, from having nothing to wanting to have everything at once. I mean, organizations have to be resilient, that's true, and we have to make timely changes, but we also need to take into account the organizational context and sources and resources available to be able to do it. And sometimes I have to raise my hand and say, "Look, I think everything you're telling me is fabulous, but I don't have the ability to do it at the moment." Whether it's the donor, the direct supervisor, or the board, say, "Look, we got this feedback, but we don't have the capacity to act on it, and from there, deploy your strategy. So what do we do? You may want to talk to the donor, see if you can put together a budget, and explore what additional resources are needed to be able to get the necessary support, right? And don't try to do everything at once because you can also make many mistakes. Civil society organizations sometimes err by saying, we're small, we don't receive large flows of money, so we never think big, and get their policies in order. Well, it's an organization, so it needs to be treated as such.

[00:16:13] Lucía Carrasco: Right. And you remind me of a conversation we had with Immaculate Mutheu, who works for an Indigenous and women-led organization in Kenya, who told us that, actually, part of her job was to reverse all the policies they had, review their context, and really create policies that were adapted to their situation and organizational stage they were at.

[00:16:36] This was fundamental to diversifying their sources of income, generating capital reserves, and so on. And what you say about the importance of being able to create the space within your team to talk about it, to discuss these complex topics, that's crucial.

[00:17:00] Lucía Albarracín: Yes, and the auditor is a person just like you. Sometimes they probably know less about you and what you do than they think they do. After all, as auditors, we spend a lot of time in different organizations. What we really end up doing is learning from what this organization is doing, how it does its processes, and most likely comparing it with another one we just visited, and knowing that perhaps what's working there, I can also recommend here. Since we work on social issues, we should be more humane in our processes and remember that others have the same needs. In other words, you, too, are a brother or a sister who comes to contribute, and so we are all learning from each other. And to me, one of the most important audits and one that every organization should do on its own initiative at least once in its lifetime is the institutional one, because it's the one audit that comes and looks at everything. This gives peace of mind to the members, the board, and everyone in the organization.

[00:18:06] Lucía Carrasco: I really like your proposal and this formulation of humanizing these processes, which, as you said, obviously, um, have to do a lot with how you relate to the auditor and being able to share this within your team. But I also think it has to do, um, with the knowledge that we can gather from other experiences and from what other leaders have experienced in organizations that are similar to ours.

[00:18:39] Lucía Albarracín: If there are several organizations that work on LGBTI issues, then they all work towards that mission, so to speak, very closely together. But they never talk about the administrative and financial pieces, and it's possible that they have doubts there too. I mean something that happened to one of them and how they were able to overcome it, how they dealt with it, and what worked; that's a lesson that can be shared. So I think it's also necessary to create a support network for the administrative and financial aspects.

[00:19:10] Lucía Carrasco: As we wrap up this conversation, let me revisit some of the key points you shared with us to help us sleep better through the audit process. First, the crucial role of communication and of good communication within our teams, not assuming everyone knows or understands the same things.

Second, the importance of consolidating financial policies and processes that are adapted to our contexts. Not thinking that because our organization is small, we shouldn't have those policies and processes in place. Third, I would say the importance of developing the reflex to ask questions if something is unclear in our contracts, to speak or write to our donors to clarify doubts and to forge this relationship of allies and peers with them.

And finally, how these audit processes are vital for moving forward and providing peace of mind to partners, the board, staff and everyone who supports our mission. And of course, we will continue sharing experiences on this and other related topics through this podcast.

[00:20:25] Lucía Albarracín: That's right. If we don't have the exact answer, at least we share our experiences.

[00:20:33] Get in touch with us for any questions or topics you'd like us to cover. You can find the resources mentioned in this podcast at springstrategies.org/podcast. Grit, Mission, and Numbers is a podcast about the untold stories of finance practitioners working for social change and is produced by Spring Strategies.

This podcast is not a substitute for legal, fiscal, or financial advice. Thank you for listening.

[00:21:03] This podcast is hosted and produced by Lucía Carrasco and edited by Canadian Podcast Productions. Additional editing, communications, and production support were done by our team at Spring. The music for this podcast is by Frontera Bugalu and Lawd Ito, courtesy of Epidemic Sound.