Get audit-ready in 3 stepsAdele Chazin
For many nonprofits, going through an annual audit is like undergoing a root canal – it’s a painful, stressful, and expensive experience. The good news is that it doesn’t have to be that way (the audit, that is).
Through advance planning, organization, and knowledge of audit requirements, nonprofits can embark on their annual audit with ease and confidence.
Here are three steps to ensure your next audit runs smoothly and painlessly.
1. Make it a year-round effort.
If you’re scrambling to prepare for an upcoming audit, you’re already late to the game. It’s critical to prepare for the audit by collecting and organizing documentation for the auditor throughout the year.
Auditors want to make sure everything has gone through the correct channels: invoices, receipts, bank account reconciliations, investment account reconciliations, and anything else relating to money going out or coming in. Keep them in order, and you’ll be able to respond to your auditor’s request quickly and with a minimum of effort.
On the accounts payable side, that means keeping all invoices arranged by vendor. On the revenue side, that means keeping backup documentation for every dollar received: copies of checks, deposit slips, invoices you sent out, contracts, etc. Be sure to code everything you receive properly, and maintain a regular schedule to analyze, review, and reconcile your balance sheets.
It’s also important to communicate with the auditor year-round: You’ll need to understand any new guidance and accounting requirements, and discuss any operational or policy changes within your organization. Call on your auditor anytime you encounter an accounting situation that isn’t completely black-and-white, and you’ll keep it from becoming a problem at audit time.
Updating your records on a monthly basis might take an extra hour or two, whereas catching up on a year’s worth of accounting means at least two days of work. You’ll also save time (and error) working when the subject is fresh on your mind, rather than months in the past.
2. Organize with the auditor in mind.
First, understand exactly what the auditor will need. Review their Prepared by Client (PBC) List, learn from your past experiences, and don’t be afraid to ask questions.
Next, it’s critical to provide all of the required documentation in a concise, organized way that will be easy for an auditor to access and decipher. Don’t leave things out thinking they won’t notice or care – that will only slow down the process and increase the time required to complete your audit (meaning higher costs).
You can also help minimize the time required by updating to the latest accounting software and automating reports and schedules. Online tools are great for processing and storing data that your auditors will need; Bill.com, for example, requires you to go through a proper approval process for each item, and keeps track of all steps. The best part: At audit time, the only thing you need to provide your auditor is a login. (Many online systems will also link up to your offline software.)
3. Don’t go it alone.
Audits that are long, messy, and complicated are also expensive, so it often makes fiscal sense to invest in outside assistance in order to streamline the process. Outsourced accounting firms like Chazin & Company offer a full range of services, up to and including CFO services, consulting services, accounting services, and audit preparation.
In order to minimize the “fire drills” at the end of every year, consider having an outsourced firm review your financials monthly or quarterly to identify any potential audit issues throughout the year. They can also assist you by creating and maintaining schedules, and compiling relevant documentation throughout the year so you aren’t trying to pull everything together at the eleventh hour.
In other words, allow the outside experts to prepare you for your audit so you can remain focused on more mission-critical activities.
To find out more about the audit process, and how your nonprofit can best prepare for it, join Chazin & Company at the GCN offices on Oct. 30 for a morning audit preparation seminar, followed by a lunch-and-learn with our experts, ready to address any of your nonprofit accounting questions. Details coming soon – watch your inbox.
Adele Chazin is Principal at Chazin & Company, a GCN business partner.
Chazin & Company is an outsourced accounting firm for nonprofits, offering a unique and respected approach to the audit process. By providing auditors with a comprehensive, electronic package prior to the audit, auditors work efficiently and independently, resulting in fewer client disruptions and lower audit costs.