Martha Stewart, queen of all things domestic, homemade, and orderly, professes, “There are few rites of spring more satisfying than the annual clean.”
Well folks, it’s officially spring, and time for that annual clean Martha claims is so satisfying. And, that means you, nonprofit financial professionals. But we’re not talking hauling unwanted items from your bedroom closet and kitchen junk drawer to Goodwill, but instead, scrubbing your nonprofit’s financial records in preparation for your upcoming audit.
Sure, you should be audit-ready all year ‘round, by proactively:
- Keeping an “audit file” in which you routinely put copies of documents related to fixed assets, loan agreements, or other areas typically examined in audits.
- Maintaining a file in which you document restricted donations throughout the year, so the documentation is ready for the auditors at year-end.
- Segregating cash and non-cash donations in the General Ledger throughout the year, rather than waiting to separate them out at the end of the year.
- Continually evaluating recordkeeping systems to identify opportunities to improve controls and efficiencies.
And, now that the audit is upon you, here are more specific tasks to tackle right now:
- Have all your financials’ supporting schedules, requested by your auditor, gathered, well organized, and ready to hand over. This list may include schedules and reconciliations around cash, investments, accounts receivables, accounts payable, expenses, fixed assets, revenue, net assets, debt, and more. All your numbers on your supporting schedules should add up and agree to your accounting records. If they don’t, there’s not a whole lot your auditor can do.
- Provide your auditor with thorough documentation around your accounting procedures and internal controls. Your documentation should answer questions like, “How do you process money coming in?” “How do you process money going out?” And, “How do you handle cash?” If you don’t have this documented, your auditor will have to gather this information through interviews with your nonprofit’s management.
- Be ready to provide explanations for any large variances your auditor will uncover during the analytical process. For example, if your fixed assets went up by 30 percent this year, you should let your auditor know, up front, that your nonprofit added a new program during the fiscal year and had to purchase two new vehicles to support it.
- Set aside dedicated accommodations in which your auditor can conduct his or her field work.
- Designate a point-person in your organization to act as a liaison between your finance team and independent auditor.
When you’re proactive, you can avoid the stressful crunch of last-minute audit preparations. And, for those Martha Stewart types out there, you may just find audit prep satisfying!
For more on preparing for and surviving your financial audit, download our Nonprofit Audit 101 Guide.