By Samantha Abraham
Many nonprofits will need a financial statement audit to satisfy state regulations, funding requirements or a board’s decision for increased transparency and internal process maturation.
The board of directors will likely use an RFP process to find an outside, independent CPA firm with experience in nonprofit accounting, hopefully within your organization’s niche. A team of one senior auditor and one or more audit staff will be assigned to handle the audit.
During the audit, the team will test your financial statements and transactions to make sure that you’re following generally accepted accounting principles, that internal controls are reasonable and that the statements reflect the reality of transactions of the organization.
The biggest myth surrounding auditors is that they seek to find problems with your organization and its accounting. The audit process is not an us-versus-them scenario between the auditors and the organization’s accounting team; auditors want to help an organization be successful.
The auditors’ goal is to inspect your organization’s financial statements with an “attitude of professional skepticism” to ensure items are being handled accurately. After their inspection, they’ll attest that your financial statements fairly represent the financial position of your organization. With that, your donors will have confidence in your financials.
The biggest mistake nonprofits make while preparing for an audit is delaying important conversations with their audit team. If your organization has experienced major changes or unique situations in the fiscal year being examined, discuss these items before the formal audit process begins. If you wait until after the formal process starts, it may have negative consequences in your audit’s outcome.
The best preparation for an audit begins months in advance of the team’s arrival. Your internal financial team should create and document your accounting processes and procedures and use those as a foundation for recordkeeping and operations. If you create multiple layers of checks and balances and follow them consistently while maintaining thorough documentation for all transactions throughout the year, your audit will be much easier. Rather than scrambling to cobble together papers and hoping for the best outcome in spite of a lack of planning, with a minimal investment in audit prep time you’ll have documentation organized and ready when the auditors make their requests.
Nonprofits that cultivate a positive attitude toward financial processes and prepare ahead of time can learn to enjoy and thrive in the audit process, embracing what it means for the organization’s growth and success.
Samantha Abraham is the CEO & Co-Founder of My Paper Pusher LLC, a bookkeeping firm specializing in building relationships with nonprofits and small businesses. She is a Certified QuickBooks Proadvisor and holds two certificates in nonprofit financial management. Samantha’s goal for her clients is to give business owners and nonprofit leaders the time, energy and resources to pursue their passion and focus on their strengths while providing exceptional services to streamline operations and catalyze their business’ progress and growth. Learn more at www.mypaperpusher.com.
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