Nonprofits: Ready, Set, Audit!

By: Helen Weeber

August 24, 2023

You can demonstrate your organization’s financial fitness to donors and other stakeholders by organizing yearly financial statement audits. In addition, state governments and other grant makers may require them.

However, don’t expect auditors to jump in to handle every piece of the process. You’ll need planning and preparation to make your audit effective, not to mention a lot less disruptive to staffers and clients.

Getting in Shape

Preparing financial records for evaluation should be a top priority. Don’t wait until the end of the fiscal year to reconcile accounts (such as cash, receivables, pledges, payables, accruals, and revenues). Monthly or quarterly, reconcile general ledger account balances to supporting schedules (bank reconciliation, receivables, and payable aging). Remember to reconcile database information provided and maintained by non-accounting departments, such as contributions, event revenue, registration revenue, and sponsorships.

Collect all supporting paperwork and notify auditors immediately if anything is missing. You may need to acquire duplicate invoices from vendors or ask donors for copies of letters describing restrictions on contributions.

Timing

Auditors often construct a Provided by Client (PBC) list of resources they expect you to supply as part of their planning process. The list contains a timeline that shows when the auditors will require each type of material. Submit everything on the list as outlined in the timeline. If you don’t, you risk delaying the audit and missing your board’s completion date.

Perform a self-review of each submission before delivering it to ensure accuracy. Also, before auditors arrive, look for significant changes in your account balances compared to the prior year. Auditors will investigate significant revenue and spending variances; make sure you’re prepared to explain them, as well as budget variations, promptly and clearly.

Learning from Mistakes

It is not necessary to reinvent the wheel for each audit. Audits from prior years can be helpful. Check previous years’ audit entries to ensure you didn’t make the same mistakes this year.

Also, ensure that you have posted all audit entries from the last audit. Otherwise, your financial accounts may be skewed.

Following Guidelines

A little planning ahead of time can make an audit simpler for you and your staff. But don’t put off preparations until the last minute. As you record new grants and contracts throughout the year, follow your auditors’ standards. Contact your auditors or HW&Co. advisor if you have any questions.