During a nonprofit audit, Altruic Advisors will test your organization’s internal controls. “Internal controls” are the financial guidelines, rules, and policies that an organization uses to prevent fraud or misuse of funds and to ensure proper accounting. For example, if your executive director must approve all bills before your finance department can issue payment, that’s an internal control.
An auditor will test the effectiveness of your internal controls by randomly selecting some transactions to examine. These transactions typically include disbursements (money out) and receipts (money in).
When testing disbursements, your auditors will ask themselves several questions about each transaction:
Does the nature and amount of the expense seem reasonable?
Was the expense recorded promptly and accurately?
Is there some form of documentation, such as a bill, a purchase order, or a packing slip?
Was proper approval obtained prior to payment?
For checks, was the check signed by an authorized individual?
Does the supporting documentation agree with the accounting record?
Does the bank statement agree with the supporting documentation and the accounting record?
When testing receipts, your auditors will ask similar questions:
Does the nature and amount of the income seem reasonable?
Was the income recorded promptly and accurately?
Is there some form of documentation, such as a contract, a grant agreement, or an invoice?
Does the supporting documentation agree with the accounting record?
Does the bank statement agree with the supporting documentation and the accounting record?
To answer all of these questions, you will need to provide many different documents and financial records, such as bank statements, images of cleared checks, paid invoices, purchase orders, approval authorizations, credit card receipts, and more. To save time, we recommend converting any paper documents or hard copies to digital. Electronic records are easier to locate and share with your auditors, which can improve overall audit efficiency.
