Nonprofit Organizations are likely to be required to present more audits in comparison to profit making businesses. The reason is that they depend solely on donations and government help. Since they are held accountable to donors and the government, it is important to show transparency. These entities must ensure that the money is spent accordingly. This will be done through audits. Audits also help to promote accountability and enhance the success of the NPO. An audit can highlight your greatest weaknesses so it is important to prepare for it beforehand.
Prepare ahead of time
The first crucial step to ensure your audit is made in the best conditions is to start by preparing it early enough. Make sure that all your reports and documents are well prepared throughout the year. This is something you want to start doing on the day 1 of the fiscal year. Preparing ahead of time will allow you to focus on other important services of your business instead of having to search for information.
Internal control system
Secondly, ensure that the organization’s internal control system are in check. Everything needs to be documented and working as designed. Even if you feel that you remember the details of a certain transaction, you must write it down. For instance, if you and the donors agreed to change how certain funds will be used, make sure you capture this formally in writing.
Whistle blowing policies
Additionally, you have to ensure all the whistle blowing policies are in place and properly approved. For instance, have someone, other than the person who took care of the balances, verify them on your NPO’s bank accounts. You can get a board member to approve all disbursements. Having someone highlights the misconducts and the mistakes throughout the year in order to correct them will ensure everything runs smoothly during the audit.
Reduce the cost
There are some financial reports and documents which you can prepare on your own beforehand since they do not require extensive accounting skills. This will reduce the cost of your audit. You should have documents showing details of payables, accruals, prepaid expenses and deferred revenue because they will be needed during the audit.
Follow the recommendations
Every year your audit has certain recommendations which you have to follow before your next audit. Review the report of your previous audit and find out what needs to be changed or what you want to change in order to show that you followed these recommendations. By looking at your previous year audit it will help you to understand what is coming and prepare ahead of time. You should also make any audit journal entries from the previous year that you will need this year to help you prepare.
Address the issues from the previous year
Find out if you have addressed all the issues raised from the previous year’s management letter. The auditor will need detailed information on what has been done to address those concerns and how you did to fix the problems. These details will show that you are determined to watch the success of the NPO by improving on its management. Finally, if you have any questions or concerns throughout the year, you can call your auditor to get the necessary clarifications.
Because audit is a stressful process it is always a good idea to be well prepared for it. If you have any question concerning the process of preparing for an audit or the audit itself, contact ABIP today. One of our experts will be available to answer your questions and set up a consultation.