How Divorce Attorneys Can Leverage a Financial Advisor | Free Webinar

How Nonprofit Associations Can Prepare for Their Next Audit

By: Jennifer Rock

Many associations think there’s not much worse than going through a financial audit. Some see it as a “necessary evil,” while a mere few actually look forward to the auditors coming in to check the financial information, processes and controls.

Here are five things your association can do ahead of time to help your next audit go more smoothly.

1. Document Your System of Procedures and Controls

One of the first things an auditor has to do is get an understanding of your system of procedures and controls.

It is always best if your association has its procedures and controls documented, whether it’s narratives or flowcharts. If this isn’t possible, the auditor can usually provide some checklists or questionnaires for your organization to complete. Your completed questionnaire will help the auditor get the information he or she needs.

While you might have excellent documentation of your service areas, the auditor will concentrate on key FINANCIAL processes and controls that affect the production of financial statements.

2. Prepare Trial Balances and Account Reconcilements

Your trial balance should be ready before the audit fieldwork begins (or at the latest, shortly thereafter).

Of course, there are exceptions, but having this information before fieldwork starts helps the auditor prepare their risk assessments so they can look at items that have a material impact on the financial statements.

While having reconcilements of account balances as of the audit date is necessary, it is always best to have a process for reconciling accounts on a regular basis (preferably monthly but at least quarterly).

3. Plan a Realistic Audit Timetable and Stick to It

There are plenty of unexpected things that can upset a timetable, but it’s important to develop and stick to the timetable for pre-audit planning, fieldwork, post-fieldwork wrap-up and completing the deliverables.

Lay out this timetable in the planning phase so both the auditor and your association know the target dates. If you aren’t going to meet a milestone in the timetable, discuss this with your auditor as early as possible.

If the delay is the auditor’s issue, it’s up to them to figure out how to get back on track. If the delay is your association's issue, you'll have to make adjustments, or the auditors might ask for an increase in fees due to the delays and schedule disruptions.

4. Take the Approach of Full Disclosure

Not all associations are well versed in generally accepted accounting principles (GAAP). Because of this, surprises can occur, but it is always best to tackle unusual items up front with your auditor.

If you have an unusual or new type of transaction, discuss it early and don’t wait for the auditors to find it. If you have new programs, grant agreements, contributions, leases or contracts, discuss them with the auditor during the year or at least in the planning stage of the audit. Doing this can save considerable time and effort and avoid delays in completing the audit.

5. Allocate Proper Time for the Audit

While the auditors spend a lot of time digging through paper and electronic records and other audit evidence, much of the audit involves communication with your staff.

Allow time in your schedule — and your staff’s schedule — to be available to the auditors a couple times during the day. They will need to discuss various items they encounter during the audit as well as confirm their understanding of your processes and controls. Nobody understands your association better than your team does, and as such, your team is an integral part of the audit process.

Being Prepared Can Change the Way You Look at the Annual Audit

Audits can be a terrible experience if the auditors (the CPA firm) and auditees (the nonprofit association) are not on the same page. Understanding who is responsible for what, and when, is extremely important. Communication and preparation are essential to an efficient audit.

Being prepared for your next audit will go a long way toward feeling like your auditor came in and helped you, versus feeling like the audit was an adversarial process.

Need Help?

Contact our Nonprofit Group online or call 800.899.4623.

Published January 10, 2022

Free On-Demand Webinar

What Your Nonprofit's Financial Statements Reveal

nonprofit financial statement webinar

Nonprofits Beware: Protect Tax-Exempt Status During Election Year

Many nonprofit organizations have a vested interest in political issues and their outcomes. But it’s important that...

How to Strike Out Fraud In Your Organization

Shohei Ohtani is a household name in Major League Baseball. One of the league’s most formidable players, Ohtani is...