In most everything one of the keys to success is early preparation. Just as in planning your next year budget, ensuring that you have the best possible audit results are just as valuable.
Typically a delegated finance staff, or an organization’s internal audit committee, takes on the primary responsibility of overseeing the audit process from planning to the final report.
Key pre-audit responsibilities include:
Organizations should look for an auditor or CPA firm that has expertise and knowledge of nonprofit accounting and tax-exempt charitable organizations. It is essential for an organization to locate and select a CPA or audit firm with the skills and experience to properly support not only your audit process but your organization’s overall needs and strategic objectives.
The auditor engagement letter, or proposal for audit work and services, will outline what supporting schedules and documentation will be needed. Finance staff or audit committee members should expect to gather all financials and process or procedure documentation, prepare supporting schedules for all gathered financials, and organize statements and documentation so they are ready to hand over.
An audit, or review, of a nonprofit’s financial statements, is far from uncommon for most organizations. The nonprofit audit (in whatever shape or form it comes in) serves to:
- Safeguard the organization
- Protect its funds, assets, and programs and services
- Assure supporters, donors, funders, and grantors of proper management of those funds and programs
Issues and recommendations for improvement can be common in any audit report. You might already be aware of certain weaknesses and inefficiencies, and some red flags may be spotted before the audit even begins. These issues may at the very least, mean your audit might be in for a bumpy ride, and at most, indicate risk of material misstatements.
To ensure your audit goes smoothly, here are some indicators that might raise a red flag for your organization and that you can pro-actively respond to:
- You don’t have supporting schedules
- Your numbers don’t add up correctly
- Your numbers don’t match up in your accounting system
- Your records show large “Miscellaneous” or “Other” expense categories
- You don’t have proper internal controls in place, or if you do, they are not documented and accessible
- You don’t have well-documented accounting policies and procedures
- You can’t easily explain large variances
- Your accounting system doesn’t have the ability to track revenues and expenses by funding source
If your organization begins to struggle with tracking and reporting, finds it’s using one-off spreadsheets and manual workarounds, or experiences growth and an increase in funding sources, it might be time for a more robust nonprofit accounting solution .
A proper fund accounting solution allows you to track multiple revenue sources and budgets, meet compliance and reporting requirements, make informed financial decisions, manage proper security and controls, and maintain 24/7 audit-ready financials. Now go and ace that audit!