Is Your Nonprofit Prepared to Handle an Audit?

Whether your organization is preparing for an annual financial statement audit or a single audit, being prepared can make all the difference.

Fortunately, there are some practical measures your organization's financial team (including your controller and CFO) can take to stay prepared for these audits at all times.

The Practical Purpose of Audits

Although some may see them as a headache, audits play a very important purpose in the operation of a nonprofit. For starters, audits are designed to help organizations build long-term trust and transparency with their potential donors and the general public.

At the same time, the information gleaned from an audit can help organizations make better informed decisions that may streamline operational efficiency and help nonprofits work towards their mission.

And, of course, there's the important compliance issue. Regular audits ensure that nonprofits are following all industry-related laws and regulations to keep them in good standing and maintain their 501(c)(3) status.

How to Get (And Stay) Audit-Ready

So, what does it take to keep your organization ready for an audit at all times?

1. Develop and Follow a Readiness Timeline

First, controllers, CFOs and other financial staff should design and implement a comprehensive readiness calendar or timeline with your nonprofit's year-end goals in mind. This calendar should include important deadlines and timelines for things like:

• Grant reporting and Schedule of Expenditures of Federal Awards (SEFA)
• Closing entries and reconciliations
• Financial statements and any supporting schedules that may be necessary
  
  
  

2. Keep Your Documents in Order

One of the most important aspects of audit-readiness is keeping detailed and organized documentation. This is important not just for your own financial team, but for outside audit teams as well.

Be sure, for example, that you have a centralized location for keeping all your relevant financial documents and contracts. This should include not just hard copies, but backed-up digital copies that are kept in a secure place as well.

3. Take Contract Management Seriously

Speaking of contracts, now is also a good time to review your organization's contract management strategies. Unfortunately, contracts can be a significant source of risk when it comes to audits, so it's critical to maintain a system where contracts and their terms can be carefully reviewed for compliance and reconciled as needed.

4. Meet with External Auditors Regularly

Even if your organization conducts its own internal audits, you may still need to meet with external auditors for some types of audits. If and when this is the case, it's important to establish contact with these professionals sooner rather than later so you can determine exactly what will be needed of you and your financial team.

Once you have a better idea of what kinds of documents will be needed and what steps you'll need to take, your financial team can be more proactive. Likewise, regular communication with your auditors can help you stay on top of any relevant changes to accounting standards or other things you may want to know before the audit itself.

5. Establish and Maintain Internal Controls

If you don't already have a robust system of internal controls in place within your organization, this will become very apparent during the audit process. Now is the time, then, to ensure that all internal controls are implemented and optimized. If you had a recent audit, there's a good chance you were able to identify some areas that needed improvement — so be sure to make those changes before the next audit rolls around.

6. Take Advantage of Technology and Tools

There are so many useful tools out there to assist with audit-preparedness these days, and many of them are even tailored specifically to nonprofit organizations. By leveraging these tools, you can streamline a lot of these processes while ensuring that your organization is ready for the next audit. Some examples of technologies and tools to explore include:

• Workflow automation tools
• Document management systems
• Data analytics tools
  
  
  

7. Address Issues and Make Improvements

Understand that audit readiness is something your organization will never be completely “done” with. Instead, it should be an ongoing effort to improve and optimize — meaning that your financial team should be ready to meet after an audit to discuss how it went and make recommendations for any changes. By having this type of debrief with your financial team, you can plan measures to ensure a more efficient audit the next time around.

8. Make Audit-Readiness Part of Your Culture

Finally, remember that audit-readiness isn't just the responsibility of your financial team. At the end of the day, it's up to everybody to do their part to prepare for an audit every day of the year. By fostering a culture where audits are taken seriously and planned for year-round, you can save your team a lot of time and hassle down the road.

Is Your Nonprofit Ready for an Audit?

Dealing with audits as a nonprofit can be challenging, but with these preparedness tips in mind, it doesn't have to be. With a little proactivity on the part of your team, you can get (and stay) ready for any type of audit.

To learn more about LGT and how we can serve you, contact us here.