For nonprofits and other organizations, preparing early for end–of–year audits will help set the path for success.
Having a fund accounting solution in place that will help you pull key reports, financial statements, payroll and other required audit materials will allow the audit preparation process to take place expediently and efficiently. Keep in mind, too, that sometimes audits happen more than once, so the more processes you have in place in anticipation of an audit, the smoother the audit will go.
For nonprofit organizations, grantors typically require reporting similar to an audit in terms of how their funds were allocated and any variances in spending. Multi-year grants also require reporting each year to ensure the funds are being spent in the manner designated by the grantor. Additionally audits for nonprofits are used to determine that you are meeting IRS operating standards for nonprofit exemption and ensure you have internal controls that meet the Financial Accounting Standards Board (FASB) and Generally Accepted Accounting Principles (GAAP) standards for nonprofit accounting.
Here are audit success strategies you can put in place now:
- Use technology to help increase the speed of pulling, reviewing, and reconciling data for audits. Make sure that you are using the latest IRS standards that apply to your organization. If you are using MIP’s Fund Accounting solution you will be able to set user roles and restrictions as part of your internal controls. Internal controls are one of the important tools an auditor will need to be sure you are able to identify within your nonprofit.
- Demonstrate management of contributions. Track and document incoming donations and grant funding by using custom codes to help you easily pull data and information for auditors. Also, remember to show how funds were expended, including salaries, benefits and incentives. Don’t leave out marketing and fundraising expense reports as well, because those too will be reported to grantors and are an integral part of audits.
- Set up an audit committee that can ensure you have a checks and balances process for pulling all necessary statements. Consider that if there is a board member with experience in accounting and auditing, they may be a value-add to the audit committee.
- Stay up-to-date on all IRS standards and requirements by bookmarking the IRS page for Charities and Nonprofits.
Bonus tip: If you are an Indian Tribal Government, you can access tax information and processes on reporting at the IRS website.
Interested in learning more?
Let us show you how MIP Fund Accounting can help you save time and ensure a successful audit – reach out to us for a short demo.