Tips for a Smooth and Successful Not-For-Profit Audit

As your not-for-profit organization grows, you will likely have to deal with the audit process. Preparation is the key to a seamless audit experience. Are your financial foundations solid? Are there any significant risks or potential for fraud? Is there a lack of structured processes? It’s crucial to conduct a thorough assessment, scrutinize all financial aspects of the organization, and address any deficiencies. This proactive approach not only minimizes surprises during an audit but also enhances your organization’s credibility. Establishing regular reviews and updates to your financial procedures can turn what might be a reactive scramble into a controlled stride toward organizational accountability. Below are 7 key tips to keep in mind for a smooth not-for-profit audit.

Adopt Year-Round Planning

This involves regular financial checks and keeping audit trails up-to-date. By treating audit readiness as a continual process, your organization can reduce last-minute stress, ensuring that everything is in order when it is time for the external audit.

Assess and Evaluate Changes

Review any new initiatives or projects that your organization has launched or phased out over the year. These could include community health or educational programs, environmental campaigns or fundraising efforts. Consider whether you have received any significant grants that come with extra reporting obligations. Have there been any updates to your leadership team or modifications to your internal controls that might require procedural adjustments? Make sure to inform your auditor about these changes early on to facilitate a smooth audit process.

Review and Implement Previous Audit Recommendations

Address recommendations or findings found in previous audits. This shows auditors that your organization takes the audit process seriously and is committed to continuous improvement.  

Engage Staff and Board Members

Well in advance of the audit, distribute the audit schedule and list of documents or information that the employees are responsible for preparing and providing to the auditor. Provide them with a clear outline of what will be required during the audit period. This includes deadlines for document submissions and any specific tasks they need to complete. Be sure to assign specific roles and responsibilities to staff and board members. Clear role delineation helps prevent overlaps and ensures that every aspect of the audit requirement is covered.

Communicate Throughout the Process

Communicate early and often. There are a lot of moving parts as you work your way through the audit, and keeping open lines of communication with your auditing firm helps the audit process move smoothly.

Make Documents Available Electronically

This approach not only streamlines the audit process but is also a best practice for document management. Ensure that all digital files are backed up regularly and protected with robust security measures to safeguard sensitive information.

Organize, Organize, Organize!

Maintain meticulously organized financial records. Sort and store receipts, bank statements, invoices, payroll details, and donation records in an orderly manner. Be sure these documents are readily available and easy to retrieve. It is also important to implement a reliable accounting system and to use it consistently throughout the fiscal year. This system should facilitate the regular updating and reviewing of financial data, making it simpler to manage and prepare for audits. An audit provides a thorough and impartial evaluation of an organization’s financial statements, verifying their accuracy and compliance with applicable accounting standards and regulations. This process helps to establish trust and credibility with stakeholders, including donors, investors, and regulatory bodies, by confirming the integrity and transparency of the organization’s financial practices. The audit process can also provide valuable insights that can guide management decisions and enhance operational efficiencies and improve internal controls.

When are Nonprofit Audits Required

Revenue Thresholds

Many states in the U.S. have regulations that require nonprofits to conduct audits if their annual funding exceeds a certain amount. This threshold varies by state but is commonly set around $500,000.

Federal Funding

Nonprofits that receive federal funds may be required to have an audit particularly if they expend $750,000 or more in federal awards in a fiscal year.

Grant Requirements

Private foundations or other funding entities often require an audit as part of their grant-making process, especially for larger grants.

Organizational Bylaws

Some nonprofits include audit requirements in their bylaws as part of their internal governance policies. This mandates regular audits to maintain high levels of transparency and accountability to their donors and stakeholders. The A Team Cares, our dedicated Team of not-for-profit outsourced accounting professionals, has vast experience in financial audits. Learn more about our tailored accounting services and contact us for a complimentary phone consultation to discuss how we can help you streamline your auditing process. Your Success is at the Heart of Everything We Do.