When that time of year comes around for your annual audit, you need to make sure you are ready. Being prepared is the key when it comes to handling any audit. You want to be sure that your policies and procedures are being adhered to, internal controls are operating effectively and your financial statements are in line with Generally Accepted Accounting Principles (GAAP). Prepping for an audit can be a grueling process, but it’s a necessary one. Go over these 10 non-profit audit tips to ensure your next external audit is quick and painless.
1. Have A Plan
As with any complicated process, it is always better to have a plan in place ahead of time. When we say ahead of time, we mean three to four months ahead of time. Audit season occurs traditionally within 3 to 8 weeks following the close of the fiscal year, so your plan should begin to form well in advance. This might sound like a stretch, but there is no such thing as being too prepared when it’s your organization’s financial well being on the line.
2. Monthly Reconciliation
Reconciliation should be a regular practice within your non-profit organization. As long as your organization is running, it means you’re spending and making money. It is your job to account for that money. If you let your records pile up, two things are going to happen:
You are going to have a huge pile of records to deal with in a short amount of time
You are going to be scrambling to reconcile those records before your auditors arrive, leaving plenty of room for unintentional and careless errors and/or omissions
This is why a MONTHLY reconciliation process is absolutely necessary if you expect to be approved by your auditors.
3. Go Over The List
Most auditors give organizations a list prior to the audit, so they know what is expected. This list indicates everything that your organization should have ready when the auditors arrive. Make copies of this list and pass it around to all personnel, honing in on your finance department. Make sure all members of the organization are thoroughly prepared.
4. Create A Calendar
Once you’ve got that list, go ahead and put it in calendar form with the help of your audit team and personnel. You want to make sure you’re including all deadlines for all deliverables on this calendar, so everyone is attuned to what is going to be required from them.
Pro-forma documents are projected financial statements. Be sure to discuss with your audit team any and all information that you know is excluded from your Pro-forma or may be in the near future, like reconstruction of the non-profit.
6. Book Adjustments
This is simply another precaution to ensure your organization is in line with GAAP. Any and all adjustments should be booked before finalizing the trial balance. Entries have every chance to slip through the cracks in a yearly financial statement view.
7. Ledger Changes
Make sure your auditors are aware of any new accounts in your general ledger. It’s not the worst thing to surprise an auditor with a new account, but your goal should be to keep them in the loop with every single aspect of your organization’s records.
8. Financial Contingencies
This should go without saying, but your audit teams need FULL disclosure on all financial conditions that may be considered liabilities. For example, you may not want to explain a nasty lawsuit from the previous year, but your auditors need to know this kind of information. They are not there to judge your organization. Their responsibility is to ensure YOUR financials adhere to GAAP and are not misleading to its readers.
9. Old Assets/Uncollectable Receivables
Write off old assets/uncollectable receivables and write them off immediately. Having an auditor determine assets/receivables are uncollectable will most likely mean the most conservative answer. Your management team is more attune to the records and are responsible for developing these estimates. Keeping this analysis in house will result in a better approach to dealing with these assets and allows the auditor to simply review management’s estimate.
10. Prior Year
With each annual audit, your organization should become more familiar with the procedure. You know the auditors are going to review and record adjustments from the prior year, so why not get a head start and have them booked before the auditors arrive? If nothing else, your auditor is going to be incredibly grateful for the saved time.
Analyze your final results compared to your budgeted results and be prepared to explain the differences. Things that don’t add up are going to draw the auditor’s attention and could incur additional un-budgeted time, so make sure you have a reason for any variations in your budgets.
If you remember one thing about this blog post – remember “Be Prepared.” We can’t stress that enough. Make review part of your weekly schedule. When you’re on top of your records and keep everything up to date – you will have no reason to dread those annual audits! Want to learn more – click the button below: