An annual financial statement audit demonstrates an organization’s financial fitness to donors and other stakeholders, and state governments and other grantmakers may mandate them. As with all audits, preparation for a NFP audit takes preparation–you cannot assume that auditors will simply swoop in and take care of everything related to the process. It takes planning and preparation to make an audit effective, not to mention a lot less disruptive to staffers and clients.
Getting in Shape
One priority is preparing financial records for review. You shouldn’t wait until audit time to reconcile accounts — for example, cash, receivables, pledges, payables, accruals and revenues. Reconcile general ledger account balances to supporting schedules (bank reconciliation, receivables and payable aging) monthly or at least quarterly. And don’t forget to reconcile database information provided and maintained by nonaccounting departments, such as contributions, events revenue, registration revenue and sponsorships.
Also, collect all supporting documentation and, if anything is missing, alert auditors immediately. You may need to request duplicate invoices from vendors or ask donors for copies of letters describing restrictions on contributions.
Timing it Right
As part of their planning process, auditors typically compile a Provided by Client (PBC) list of materials they expect you to produce. The list includes a timeline indicating when the auditors need each type of material. Submit everything on the list according to the timeline. If you don’t, you could push back the audit itself and miss your board’s deadline for completion.
To ensure accuracy, perform a self-review of all information before you send it. Also, before the auditors arrive, identify major fluctuations in your account balances compared to the previous year. Your auditors will inquire into significant variances in revenues and expenses. Make sure you’re ready to explain them — as well as budget variances — promptly and clearly.
Learning From Mistakes
You don’t need to reinvent the wheel for every audit. Audits from previous years provide useful guidance. So check prior years’ audit entries and confirm that you didn’t make the same errors this year.
Also confirm that you posted all of the audit entries from the last audit. If you didn’t, your financial statements might be distorted.
Following Guidelines
Preparation for your NFP audit done in advance makes it so much easier on staff. But don’t wait until the last minute to get ready. As you record new grants and contracts during the year, make sure you’re doing it according to your auditors’ guidelines. If you have questions, contact us or your auditors.
Want to learn more about Olsen Thielen’s services to nonprofits? One way to do that is to check out our Q &A Over Coffee podcasts. Pay particular attention to Episode #8, which discusses Understanding Your 990. We have many great topics—check it out–it definitely will be time well spent!