Preparing your Not-for-Profit Organization for a Financial Audit
By: Enrique Llerena, CPA
Preparing for an audit is a great way to go back to basics and evaluate your operations for potential opportunities for improvement. If your organization is a not-for-profit, below are some items to consider as you prepare:
Maintain Clear and Accurate Financial Records - All financial records such as receipts, invoices, and expense reports should be organized and maintained. This will make the auditing process much more efficient for you and your team and will provide an improved process to manage your organization.
Ensure Compliance with Regulations: Management is responsible for the organization’s compliance with applicable laws and regulations, including tax laws and any regulations specific to your entity. Things to consider include reviewing your tax-exempt status, reporting procedures, and how restricted funds are used.
Review and Strengthen Internal Controls: Internal controls are procedures put in place to prevent fraud and mismanagement. Before an audit, review these controls to make sure they properly communicated within the organization and functioning as intended. Things to consider are proper separation of duties, appropriate authorization of transactions, and robust reporting procedures.
Organize Documentation: The easier it is to follow the documentation provided, the more efficient the audit process will be. Any document related to your organization's operation needs to be readily available and in an electronic format. Items that should be digitized to pdf include Board meeting minutes, contracts, grant agreements and personnel files.
Form an Audit Committee: If you don't already have one, consider forming an audit committee. This group should consist of individuals familiar with your organization's finances and the audit process. They can help manage the audit, liaise with auditors, and address any issues that arise.
Timely Communication with the Auditor: Communication is key during the audit process. Prior to the audit, reach out to the auditor to understand their requirements, deliverables, and timelines. With this communication there will be no surprises.
Discuss the process with your Staff: Clear communication is valuable to both external and internal parties. Explain to your staff the expectations of the goals and expectations for the audit process. They should receive a clear explanation of the expectations, deliverables and timeline.
An audit may seem intimidating but it is actually an opportunity to communicate to the users of the financial statements how effective the team is adhering to the organization’s mission. With attention to detail, organized records, and internal monitoring of compliance, your organization will not only be ready for the audit, you will be able to use results to enhance the effectiveness of your procedures.
If you need assistance preparing for your audit or need an auditor to perform this service for your organization, CFLG is here to help. Contact us at (305) 662-7272 or email us at email@example.com