7 tips to take the stress out of your nonprofit’s annual audit
You love your job with a nonprofit organization. You believe strongly in the good work you do every day. But there’s one part you do not love — the annual audit.
Pennsylvania statute says charitable nonprofits with contributions of at least $750,000 must undergo an annual independent audit by a certified public accountant.
If the audit is inevitable, how can you ease the stress? With thorough preparation at every step of the process, from the pre-audit meeting among you, your staff and the audit team through sharing the results with your board of directors.
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.
This year also marks the implementation of new Financial Accounting Standards Board (FASB) requirements covering how net assets, endowments, donations of property and equipment, liquidity, expenses and cash flow appear on nonprofit financial statements. If you haven’t already, you will want to check with your CPA now to see if you need to change your policies and procedures to comply with the new requirements.
7 tips to alleviate audit stress
1. 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.
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 teambuilding as staffers work together toward a successful result.
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.
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 is co-chair of the firm’s Nonprofit group and participates in the Government Services group. He can be reached at 717-761-7210 or email@example.com