8 Tips to Ensure Your Nonprofit Organization is Audit Ready

By Geneka K. Zechman, CPA

No matter the circumstances, the annual audit or review can be stressful. This can be the case for most nonprofits as it can take time away from carrying out your organization’s daily mission.

Pennsylvania statute says charitable nonprofits with contributions:

• of at least $250,000 must undergo an annual independent review by a certified public accountant
• that exceed $750,000 must undergo an annual independent audit by a certified public accountant.

Many situations and factors may cause stress for your organization. As in so much of life, preparation is key. The eight tips outlined below can make the next mandatory audit or review one less thing to worry about.

What to expect

During an external audit, the CPA will examine your nonprofit’s financial records to determine whether they adhere to the Financial Accounting Standards Board’s “generally accepted accounting principles” (GAAP). These records include but are not limited to, bank accounts, business transactions, grants received or expected, accounting practices, internal controls and payroll information.

Your CPA can advise you of state and federal legal requirements, which vary based on the number of annual contributions to the organization. Keep in mind, these annual audits benefit your organization and make it stronger by alerting you to any problems and helping you reduce risk and strengthen internal controls.

8 tips to alleviate audit stress

1. Check in and Communicate

Keep in touch with your auditor year-round. Ask questions as you have them. Make sure you understand how accounting changes may affect the audit and the items the auditor will need. Communication within your organization may provide an opportunity for team building as staffers work together toward a successful result.

2. Plan ahead

Don’t wait until the week of the audit to pull together information. Start early by gathering information that you know the auditor will need. Establish deadlines, making sure information the CPA requested is available on or before the first day of fieldwork. Pay attention to audit preparation throughout the year to lessen the year-end crunch. Periodically check to see that your staff are following your organization’s accounting policies and procedures.

3. Organize

Establish an “auditor file”. This is a centralized location for all information that is needed for the audit. Maintaining an auditor file can save time and, ultimately, money by assembling data for the current audit in a way that will also serve as a resource for future audits. Categories in this audit file may include cash, revenue and receivables, expenses and payables, investments, fixed assets, debt and payroll.

4. Build on the past

During the planning meeting with your CPA, review results of earlier audits and discuss opportunities for improvements. Make sure you have addressed any previous audit adjustments or internal control recommendations.

5. Discuss changes

Perhaps your organization started a new program, received a new grant or discontinued an activity. Maybe staff members updated the accounting and procedures manual. There may have been changes in governance, management or key personnel. Be sure to inform your CPA of changing circumstances in your organization that may affect the upcoming audit.

6. Be ready for your auditor’s arrival on-site

No matter how well you prepare, requests for additional information will arise, especially during fieldwork. Until the fieldwork is complete, key personnel, including members of the finance and accounting staff, should avoid vacations and nonessential meetings.

7. Ask questions

Don’t be afraid to request clarification on specific requests from the auditor if something is unclear. The auditor might request workpapers, reconciliations, or other audit items that may seem unfamiliar. Feel free to ask questions throughout the year as well that you think will impact the audit like any unusual or infrequent transactions.

8. Review results

Check in with the auditors between completion of fieldwork and the audit report and provide any needed additional information. Share meeting details if auditors are expected to discuss results with the board of directors. Meet with staff involved in the audit to share findings and request feedback.

Bottom line

A successful audit assures that financial statements are free of misrepresentations but does not guarantee that an organization is free from fraud. The goal is an “unqualified opinion” indicating the organization is following GAAP.

In addition to meeting legal requirements, the audit process can help to strengthen your organization, revealing any problems with financial management. Successful audit results can inspire donors’ trust, reinforce the board of directors’ confidence in financial information and help to meet grant-funding criteria.

Take time throughout the year to build a strong professional relationship with your CPA. If questions arise during the year, don’t wait until the annual audit to ask them. Your CPA can also help you learn about any new reporting standards, so there aren’t any year-end surprises.

That relationship, along with preparation, knowledge and communication, will go a long way to lessen anxiety, ensure an efficient auditing process and return your focus to the excellent work you do each day.

Geneka Zechman is a supervisor at Boyer & Ritter LLC in the firm’s Nonprofit Group. She can be reached at 717-761-7210 or gzechman@cpabr.com.