Rose Report: Issue 14

Non Profit Audits: It’s All About Being Organized

non profit audits - issue14-pic-story3It’s the time of the year when many non-profits prepare for their year-end audits. One of the most common problems many non-profits face when undergoing an audit is responding to information request from their auditors in a timely manner while still getting their day-to-day work done. As such, one of the most important attributes of an accounting department is being organized. Throughout the year, non-profits should be capturing, organizing, and maintaining all of their financial records, such as accounts payable, billing, cash receipts, journal entries, and balance sheet reconciliations. When year-end arrives, all of your financial documents will be accessible and easy to find.

Within thirty days of the fiscal year-end, non-profits should make sure their books are closed. If you’ve been through an audit before, use last year’s PBC (Prepared by Client) list as a checklist for the type of information you should expect to have readily available this year. If you’ve never been through an audit before, ask your current firm for a sample PBC list. Additionally, if you have government grants, pull all of your grant documents, supporting reports and documentation—that’s likely to be something auditors will want to see.

Another good idea is to move to electronic documents. Because they are easier to organize, access, and search, electronic records can save everyone in your organization valuable time. According to Accounting Today, electronic records can also offer a significant cost savings: “Firms are going to see hard-cost (ink, paper, postage, storage furniture) and soft-cost (time spent filing and retrieving documents) benefits by going paperless or greatly reducing paper use.” And keeping costs down is key for non-profits, which often have fewer accounting and administrative personnel than for-profit companies.

It’s also important to do some long-term planning. Think of preparing for an audit as a year-long task, not something you do at the last minute. For example, you could arrange periodic meetings with your auditors every four to six months to keep communication open. During these meetings, your auditors can give you an idea of what might be hot items in your year-end audit so you can adequately prepare.

For many organizations, the word, “audit” has a negative connotation. It can elicit fear and even dread—are we going to be singled out for doing something wrong? Are we going to have to work lots of overtime to get it done?

But audits are actually very constructive and should be thought of as positive experiences. In addition to providing a snapshot of an organization’s financial health, audits can serve as valuable proof of an organization’s legitimacy. And, particularly important for non-profits, a clean audit can show your donors that you’re putting their money to good use.