Tips for Nonprofits to Have a Successful Financial Audit

• Collect relevant documents and figures year round
• Keep costs down by organizing your auditable material and responding to auditor inquiries. By having your financial materials organized and available before the audit, your auditor can complete their job on time
• Create and follow strong internal controls to ensure only necessary parties have access to funding
• Keep a robust audit trail that connects transactions to revenue sources

If you struck out on your last audit, ask yourself these questions to evaluate your current audit processes and build upon what your organization is already doing:

• Did you know your auditor and form a relationship with them before your audit?
• Your nonprofit can select its auditor and form a relationship before the audit to ensure your organization is prepared and has the material the auditor needs ready before the audit begins.
• Did you allocate enough team resources?
• Before an audit begins, consider holding a kickoff meeting with the audit staff and your finance team so everyone is on the same page when the audit begins.
• Your organization should consider designating a person from the finance team, usually the controller, to be the point of contact for the audit team for any inquiries.
• Did you allocate enough time?
• While an audit is typically between two to four weeks long, preparing for an audit is a year-round task. The key to a successful audit is in the preparation. Your team should constantly keep auditable figures updated and organized throughout the year.
• Did you allocate enough budget?
• Audits can be expensive, and improperly allocating resources can delay the audit process. According to the National Council of Nonprofits audits typically cost up to $20,000 depending on organization size.

Technology Makes Audits More Efficient

Consider examining your nonprofit’s tech stack to ensure it’s as efficient as possible when it comes to generating and managing financial reports. Most nonprofits use too many siloed technology solutions to manage their finances and operations which create inefficiencies. According to the 2022 Nonprofit Research Study, most workers spend at least a quarter of their day managing inefficient technology systems. When it comes to audit preparation, your nonprofit’s financial figures should live in one multipurpose fund accounting system. It eliminates the need for multiple systems to manage your finances, and it keeps all your financial information in one easy-to-access location.

Auditors assess your organization’s internal controls, audit trail, and, most importantly, where and how your nonprofit spends funding. The auditors want to make sure your organization properly allocates the funds it oversees. If your organization has its figures spread throughout multiple systems, it’s creating an inefficiency that will add time when an audit begins. Fund accounting systems make the above best practices streamlined and straightforward.

When your organization uses fund accounting software, you can establish internal controls that carry over to every fund you manage and ensure only authorized users transact on your accounts. Some solutions even offer specialty licenses that allow certain people, like auditors, to view relevant financial information without having to grant access to the entire system.

If your organization isn’t using a fund accounting solution that automates the audit preparation process, your organization isn’t as prepared as it can be. Relying on simple finance systems, like paper ledgers or basic computer programs, is not enough to ace your next audit.

Nonprofit accounting systems provide 360-degree views of an organization and feature strong internal control and fraud prevention features. They also have comprehensive reporting solutions that allow your team to quickly pull reports that show the financial information auditors are looking for.

When it comes to fraud, these solutions should present a complete audit trail to show that only the people authorized to transact on an account do so. Your nonprofit should also consider creating and publicizing a whistleblower policy to combat fraud among staff. While your nonprofit isn’t required to have such a policy, it’s regarded as a best practice and helps show that your organization is a strong financial steward.

Audits carry a negative connotation, but when your organization prepares for an audit, it can step up to the plate and take a blazing fastball on the corner out of the park for a walk-off win and a successfully completed audit.

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Neil Taurins is the General Manager of Nonprofit Solutions at MIP Fund Accounting. He has been with the company for more than 12 years and is passionate about working with nonprofits to provide them with solutions to improve efficiency and better help them accomplish their mission.