Not every nonprofit organization is required to have an independent audit annually. However, for some nonprofits—given their annual budget or the source of their funding, regulations or compliance requirements require it. This stresses the importance to be aware of some processes that can help you be more prepared for your audit.
Hold a Pre-Audit Meeting
A pre-audit meeting is a meeting between the nonprofit staff who will be working with the auditors and the audit team of the CPA firm. This initial consultation is very helpful in figuring out how the actual audit process will work. During your pre-audit meeting, you will be able to ask specific questions regarding documentation, timeline, and the needs of the auditors throughout the audit. Who from your organization should attend this meeting? It is best to include staff who will be responsible for standing ready to assist auditors during their field work, and representatives from the board (or the audit committee). It’s also helpful if the Chair of the audit committee or Chair of the Board attends.
Assemble Your Documentation
Using your pre-audit meeting as your guide, you and your audit team will be able to prepare the necessary documents needed during your auditor’s field work. While there are many items that an auditor will review, below are just a few examples of what to expect/prepare:
- Year-end reconciliation statements and bank statements
- List of grant funds already received, and those that are expected, but not yet received
- Fixed assets and depreciation schedule
- List of physical items that you are intending to sell
- All grant awards and related correspondence
- General ledger for the fiscal year
- Accounting manual and financial management policies
- Payroll tax reports, W2’s, 1099’s, timekeeping records, etc.
During your pre-audit meeting with your auditor, you will be able to ask more specific questions about documentation that you should prepare for your nonprofit audit. Your audit firm may also provide you with an audit prep packet that describes what the auditors will ask to review. Auditors that are new to your organization may have more questions in advance of the audit than those who have conducted your nonprofit’s audit in the past.
Organize the Documents
Ask the auditors to let you know what format they want to receive the requested documentation in (e.g., electronic files, jpg, pdf). Having those documents ready in advance, in the right format, will help reduce the auditors’ time, and thereby save you cost. Second, place all the documents (or shortcuts to them) that the auditors review in a single electronic folder. You can do this in advance, anticipating what they may want to review, but you can also do it during the audit. This will help you have a record of what the auditors reviewed and if you put shortcuts to various documents in the folder throughout the year, it will also make it easier to find what you anticipate the auditors will want to review.
Plan for the Auditor’s Field Work
Most likely, an auditor will visit your office to conduct their field work. This is because auditors want to see where your financial operations take place. To make your auditor’s visit easier, it is best to have someone coordinate the logistics of the visit. This person should organize some of the major details like determining where the auditors will sit as they are reviewing documents, whether or not they will need internet access and how many people will be visiting your office.
Be Really Organized!
One of the best things you can do to prepare for your nonprofit accounting audit is to be really organized. Take advantage of your pre-audit meeting to ensure that you have all the documents ready for the auditors. This can save you a considerable amount of time and money. Also make sure to give yourself enough time to get everything together. Preparing for an independent audit takes time and shouldn’t be rushed.
We’ve tried to streamline and simplify these concepts, but the best solution is to discuss options with your CPA to determine the best course of action for your organization.
By: Josh Tyree, Harris CPAs
Other Recent Nonprofit Blogs
- Recording In-Kind Donations
- 2023 Spring Nonprofit Standard Newsletter
- 2022 Winter Nonprofit Standard Newsletter
- Utilize Captive Insurance Companies to Up Cash Flow
- 2022 Year-End Tax Planning Guide for Individuals
Share this Post