It’s never too early to prepare for an audit. Here are our tips for making your next audit more efficient and aligning your nonprofit’s financial practices with its mission.
Selecting the Right Auditor
Work with your board, especially the finance or audit committee, to define key attributes for an auditor and plan the selection process. Consider:
- Talking to peer organizations for guidance and referrals
- Allowing plenty of time to plan and execute a request for proposals if needed
- Looking for auditors with relevant experience. For example, if you’re a large, grant-funded nonprofit, don’t use an auditor that specializes in small, membership-driven organizations.
- Find out what level of detail auditors will provide—just the basics to satisfy reporting requirements or a comprehensive analysis that compares your organization to its peers?
When you go through an audit, you’re forming a relationship with your auditor. As the auditor looks into your organization, ask how they can help if they uncover fraud.
Planning and Preparing for an Audit
Audits for nonprofit organizations need to be planned for as much as possible. Preparing for an audit helps keep things simple for your finance team and the auditors. To help the process along:
- Collect relevant documents and figures year-round and keep them in a central location that’s easy to access
- Establish a clear timeline and work milestones with your auditor
- Hold a kickoff meeting that includes the audit staff and your finance team, so everyone in your nonprofit audit committee is in sync about timetables and duties
- Prepare electronic and hard copies of an “audit binder” with standard documentation for bank accounts, investment accounts, fixed assets, payroll, and other relevant documents
- Designate one person, (probably your controller) as the point of contact for when the audit team has questions
Keeping Audit Costs Down
Audits are easier when they’re more efficient and less costly. You can achieve this when you:
- Work around your auditors’ busy season
- Make the audit as easy as possible by organizing materials in advance and quickly responding to inquiries
- Avoid changing auditors unless you have a pressing reason
What Auditors Are Acessing
As they assess your organization’s financial position, auditors look at how much money comes in and goes out, and whether you handled it appropriately in between. Details they want to see include:
- Strong internal controls over access to money and records to prevent mistakes or fraud
- An audit trail that connects transactions to sources of revenue
- Nonprofit audit reports that show how funds are used and other relevant financial activities
How the Right Technology Helps During Audits
Using fund accounting software assists in the audit process. Fund accounting software should have functions like:
- Granular control over how your personnel access financial systems
- A fully auditable general ledger
- Automation of business rules to prevent errors and fraud
- Clear classification of restricted and unrestricted net assets
- Quick generation of profit and loss statements and other reports for individual grants
- Easy access to documentation
At MIP Fund Accounting®, our software solution simplifies fund account audit reports. MIP ktracks every dollar going in or out and has all the documentation necessary for an audit. With complete compliance and a clear audit trail, our tools offer total transparency before, during, and after the audit process.
MIP’s tools keep track of your multiple revenue sources with accuracy. Our reporting module offers customizable, multidimensional charts and covers all aspects of your financing to make your next audit easier.
What to Do After the Audit
Once the auditors have completed their analysis and submitted their final report or opinion letter to your board or audit committee, it’s time to address concerns.
- If auditors cite weak internal controls, shore them up. Fund accounting software with auditable system logs makes internal controls effortless.
- If auditors cite operating inefficiencies, consider what would improve your finance operations. For instance, you may need better tracking of the funding for each grant.
Getting Ready for Next Year’s Audit
It can be a lot of work to meet all nonprofit audit requirements. To help you avoid last-minute stress, here are some ideas to be more proactive:
- Keep an audit file for documents typically examined in audits
- Maintain a file of restricted donations
- Sort out cash and non-cash donations in the general ledger throughout the year
- Continually evaluate your record keeping identifying opportunities for improvement
If you’re looking for fund accounting software, MIP is the solution for you. Are you ready to simplify the auditing process? Join our webinar today.