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Preparing for Your Nonprofit Audit - 7 Tips

    Audit Illustration with charts, time, and closer looks at the figures.

    Preparing for Your Nonprofit Audit - 7 Tips

    On June 01, 2018 by Liesa Malik

    As June approaches, many nonprofits are getting ready to finish up their fiscal years.  Before you pop the champagne in celebration however, you need to prepare for the year to come. No. Resolutions aren’t necessary. Nor will your organization be better off setting a goal to lose five pounds. But audits are the first big projects of the new cycle for most organizations. Taking an average of one to three months to complete, this is the kind of project that’s best faced with an organized plan.

    There are two kinds of audits—those conducted with an outside CPA or accounting firm, and those conducted internally.  The latter is usually for smaller organizations that don’t have a required reporting process, but don’t let the informality fool you.  At the end, you still have several deliverables, the same as a larger organization.  Some of those deliverables include:

    • Management accounting reports
    • Annual reports for board members, grantors, individual donors, and other constituents
    • Auditors’ statements and written opinions
    • 990 Forms to the IRS

    Here are seven tips to help you get organized for your audit  

    This pre-audit planning can help you save both time and money. While some of the examples focus on CPA consulting audits, all the ideas have relevance for every nonprofit.

    1. Choose good audit teams – Generally you’ll have two teams to run an audit – your external resources (CPAs) and internal resources. For your inside team, choose people who communicate well together, know all of your systems and operations, and have a level of knowledge both about your organization and about accounting that will create confidence within the management and board of your organization. For outside consultants, find people who have a good knowledge of fund accounting and audit experience. Check with your friends in the industry, or perhaps your local chapter of the AICPA for help.
    2. Have a place for everything – Here I mean a single place. The National Council on Nonprofits recommends a single electronic folder to hold all your documents or shortcuts to them, which automatically gives you a record of what you had reviewed this year, and what you want to be preparing for next.
    3. Conduct a Pre-Audit Meeting – This isn’t just a meet and greet, but a working meeting to determine and/or agree to the ground rules of the audit:
      1. What the outside auditors will do and what the internal team will do
      2. Who specifically is responsible for which tasks
      3. What documents are required
      4. What format the deliverables will take
      5. Which documents will be reviewed and tested
      6. How long the audit will take, and when you will present the deliverables
      7. Sometimes even audit expenses will be planned
    4. Work with a software system you can count on – Here, the right accounting system will save you several hours and many challenges. There are, unfortunately, packages sold and in use today that some call “an embezzler’s dream.” At Tangicloud powered by Microsoft Dynamics 365 Business Central, our software has been tested and certified for best practices, thus adding Microsoft’s international compliance muscle. We follow GAAP principles and are proud of our focus on our fund accounting features embedded into the solution as well as the extensive retention of transaction details and capture of user and date tags.
    5. Be aware of government and grantor needs - There are rules for both Federal and State governments. And you need to be as transparent as possible for those from whom you receive funds. While you needn’t become an expert in nonprofit law, be aware and prepared to follow general guidelines and show to your work.
    6. Document, document, document! – Having a single place for all of your work is a great starting point, but also have a standard best practice of how you document your organization for review. Keep or have access to board member names, key donors, changes to your by-laws, receipts for fixed assets and a documented outline of how you handle depreciation. This is a starting point. You and your team will also want to document how your operations work and record other areas of your organization that help present the overall picture of your operational health.
    7. Present your audit to your board – Many board members are not accountants and the Statement of Condition may make their eyes glaze over.  As the lead of your audit group, you must be able to help the board understand the story of your success with the proofs your figures present. You’re helping them “sell” your organization to a broader world, so be clear, concise, and thoughtful. Give them the phrases they can repeat to others, and the figures to back them up.