2020 has enough stressors. Here’s 7 tips so your nonprofit’s next audit isn’t one of them
Living in coronavirus times has plenty of stress, from the potential impact on donations to dealing with lockdowns and transitioning to a distributed, home-based workforce. Not to mention the genuine health concerns regarding the virus itself.
Nonprofits also face another fact of life that, for some, can add more stress: the annual audit or review.
Pennsylvania statute says charitable nonprofits with contributions:
- of at least $250,000 must undergo an annual independent review by a certified public accountant
- that exceed $750,000 must undergo an annual independent audit by a certified public accountant.
But unlike the uncertainties of what the continuing pandemic may bring, your nonprofit’s annual checkup doesn’t have to be viewed with teeth-clenching nervousness or dread.
As in so much of life, preparation is key. The seven steps outlined below can make the next mandatory audit or review one less thing to worry about.
What to expect
During the external audit, the CPA will examine your nonprofit’s financial records to determine whether they adhere to the Financial Accounting Standards Board’s “generally accepted accounting principles” (GAAP). These records include but are not limited to, bank accounts, business transactions, grants received or expected, accounting practices, internal controls and payroll information.
Your CPA can advise you of state and federal legal requirements, which vary based on the number of annual contributions to the organization. Keep in mind, these annual audits benefit your organization and make it stronger by alerting you to any problems and helping you reduce risk and strengthen internal controls.
A word about PPP and EIDL loans
This year, your organization may have the added complexity of Payroll Protection Program (PPP) or Economic Injury Disaster (EIDL) loans on the books. Make sure you have a careful accounting of you used the money, showing you followed the guidelines on how much had to be used for payroll as opposed to other allowed expenses.
Recent federal guidance also allows PPP recipients with loans of $50,000 or less to fill out an abbreviated forgiveness application (Form 3508S) and no longer have to worry if they used the money to maintain employees’ “full-time equivalent status,’’ or FTE.
Using both EIDL loans and PPP loans correctly can be complicated and having your paperwork in order is especially critical when you apply for PPP loan forgiveness. Unknowns still circle the PPP loan forgiveness process. Talking to your lender in advance about the required supporting documentation will help prevent grief later. Boyer & Ritter can help you navigate the loan forgiveness program’s compliance requirements, help to complete the forgiveness application to help maximize forgiveness, and provide a reliable and trusted source of information for your lender and the government.
To learn more about engaging us for PPP Loan Forgiveness Support Services and help determine the level of support you may need, please contact us HERE.
7 tips to alleviate audit stress
Keep in touch with your auditor year-round. Ask questions at any time to make sure you understand how accounting changes may affect the audit and the items the auditor will need. Communication within your organization may provide an opportunity for team building as staffers work together toward a successful result.
2. Plan ahead
Begin early to pull together the specific items the auditor will need. Establish deadlines, making sure information the CPA requested is available on or before the first day of fieldwork. Pay attention to audit preparation throughout the year to lessen the year-end crunch. Periodically check to see that your staff are following your organization’s accounting policies and procedures.
Save time and, ultimately, money by assembling data for the current audit in a way that will also serve as a resource for future audits. Categories may include cash, revenue and receivables, expenses and payables, investments, fixed assets, debt and payroll.
4. Build on the past
During the planning meeting with your CPA, review results of earlier audits and discuss opportunities for improvements. Make sure you have addressed any previous audit adjustments or internal control recommendations.
5. Discuss changes
Perhaps your organization started a new program, received a new grant or discontinued an activity. Maybe staff members updated the accounting and procedures manual. Be sure to inform your CPA of changing circumstances in your organization that may affect the audit.
6. Be accessible
No matter how well you prepare, requests for additional information will arise, especially during fieldwork. Until the fieldwork is complete, key personnel, including members of the finance and accounting staff, should avoid vacations and nonessential meetings.
7. Review results
Check in with the auditors between completion of fieldwork and the audit report and provide any needed additional information. Share meeting details if auditors are expected to discuss results with the board of directors. Meet with staff involved in the audit to share findings and request feedback.
A successful audit assures that financial statements are free of misrepresentations but does not guarantee that an organization is free from fraud. The goal is an “unqualified opinion” indicating the organization is following GAAP.
In addition to meeting legal requirements, the audit process can help to strengthen your organization, revealing any problems with financial management. Successful audit results can inspire donors’ trust, reinforce the board of directors’ confidence in financial information and help to meet grant-funding criteria.
Take time throughout the year to build a strong professional relationship with your CPA. If questions arise during the year, don’t wait until the annual audit to ask them. Your CPA can also help you learn about any new reporting standards, so there aren’t any year-end surprises.
That relationship, along with preparation, knowledge and communication, will go a long way to lessen anxiety, ensure an efficient auditing process and return your focus to the excellent work you do each day.
David J. Manbeck is a principal at Boyer & Ritter LLC and chairs the firm’s Nonprofit Group and supports the Government Services group. He can be reached at 717-761-7210 or firstname.lastname@example.org