5 Things to Consider when preparing for your audit
5 Things to Consider when preparing for your audit:
A note before beginning:
Do you need an audit in the 1st place?
All non-federal government agencies and nonprofit organizations that expend more than $750,000 or more in federal awards in a given fiscal year are required to conduct a single audit (or “Subpart F Audit). Auditors doing “Single Audits” need a higher level of certification in order to perform these audits.
Check with your State. For example, in CA a charity with gross annual revenue of $2 million or more AND that is already required to file reports with the Attorney General must file an audited financial statement.
- Pick the right auditor
- The responsibility rests with your audit committee
- If no audit committee then it rests with the Executive Director and full Board
- Get referrals from other similar organizations
- Use a RFP process, check references, get a copy of their peer review
- Determine how open the firm is to question throughout the year; most firms welcome accounting and procedural questions which only makes their audit that much smoother.
- Make sure the firm has specific experience with non-profits and even your type of non-profit.
- The annual 990 income tax return is best left for the auditor as well; make sure they can do it.
- Get your house in order
- If your bookkeeping is a mess get it cleaned up.
- If you don’t have a CPA consider having one take an overall look at your books.
- It’s important that every balance sheet account be complete and accurate. All receivables and payables need to be recorded as well as accrual entries and bank reconciliations.
- Auditors spend a lot of time in what is call “cut-off”. They work to determine that you’ve posted transactions to the proper period. So, review the time period from the end of the fiscal to the first day of field work for transactions that should have been recorded in the prior fiscal year.
- Accrual basis of accounting is required, NOT cash basis.
- Organize your Board of Directors minutes and contracts (lease, funder, and consultant).
- Set aside enough time
- The successful outcome of an external audit is key to the success of the organization. Take this seriously. Funders look for clean opinions and no adverse financial findings. A bad audit can prevent the flow of funding needed to keep the organization afloat as well as your ability to raise future revenue.
- Don’t allow any staff to take vacation during this period of time. Meet with staff weeks before the audit is scheduled and point out the importance of the audit and need for cooperation from all staff involved.
- Give the auditor what they ask for and nothing more
- If the auditor asks for the backup from a list of payables don’t give them backup for payables they didn’t ask for. Part of your goal is to help the auditor complete their work, not expand it. Giving out more information than required raises the chance of them spending time on things not looked at otherwise.
- Tell the auditor you’re interested in a detailed management letter
- Remember the purpose of the audit is not just to get a “clean” opinion. It is also to get recommendations for improvements to internal controls and process. Non-profits, as well as any other type of business, are vulnerable to fraud. A good auditing firm will recommend ways to reduce the likelihood of fraud as well as improve efficiencies.
- Audits are not cheap. Consider the audit a time when much needed improvements can be discovered and suggested. Recommendations from auditors go a long way with the Board.
As your outsourced accounting firm we will assist you with your annual audit and make possible a very smooth experience with them. Give us a call at 1-866-4-u-daily.