If your nonprofit organization is preparing for an audit or financial statement review, you might be wondering how the process works and what you can do to keep the engagement running smoothly. Lack of communication and unclear expectations are the biggest cause for delays and extra fees – so it’s important that everyone knows what to expect!
To start, it’s always a good idea to hold a pre-audit meeting between your staff and the audit team. Identify which staff members will be responsible for communicating with the auditors, and make sure their responsibilities are clearly defined. This will be helpful in figuring out how the actual audit process will work. During the meeting, you will most likely be asked specific questions regarding documentation, timeline, and any specific needs of the auditors.
Using the pre-audit meeting as your guide, you will need to gather any necessary documents in preparation for the auditor’s field work. Some of the most common documents that auditors may ask for are:
Year-end reconciliation statements and bank statements
Lists of grant funds already received, and those that are expected but not yet received
Fixed assets and depreciation schedule
All grant awards and related correspondence
General ledger for the fiscal year
An accounting manual or financial management policies if your nonprofit has these
Payroll tax reports, employee W-2s, 1099s, timekeeping records, etc.
Most likely, an auditor will visit your office to conduct their field work. This is because auditors want to see where your financial operations take place. To make the auditor’s visit easier, it’s best to designate a single person to help coordinate the logistics of the visit. This person might be responsible for clearing an area for the auditors to work (such as a conference room or spare office space), providing information on building access and parking, and helping the auditors find their way around the office.
One of the best things you can do to prepare for your nonprofit accounting audit is to get organized. Take advantage of your pre-audit meeting to ensure you have all the documents ready for the auditors as soon as they walk in. Know where the rest of your financial records are in case the auditors have additional requests. And make it clear who is responsible for each component of the audit. Being organized can save your nonprofit a considerable amount of time and money.
To keep the nonprofit audit process as easy and stress-free as possible, be proactive about communicating early and often – both with your internal staff and with the external audit team. Make sure everyone is on the same page and is aware of the plans going forward. Don’t hesitate to ask for clarification or follow up during moments of confusion. Set deadlines for your internal audit responsibilities, and pay close attention to any deadlines set by the auditors. This will keep everyone on track and help your accounting team work together more efficiently.
After the audit, you’ll likely spend some time with your Board of Directors discussing how everything went. It’s very important that all board members fully understand the financial statements and the implications of the audit opinion letter. But since they may not be used to seeing financial statements presented in this way, it can be helpful to provide a quick refresher on GAAP principles and how to interpret the statements. This can make the actual review after the audit much easier for everyone.
There are not many nonprofit professionals who would call an audit “fun,” but it is possible to make your audit relatively painless. With plenty of communication, organization, and clear assignments of responsibilities, you can help keep costs down and avoid any unnecessary delays.