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Nonprofits, Brace for your Next Audit by Following these Guidelines

July 28, 2017

Nonprofits, now is the time to take a closer look at your organization’s workflow--it will prepare you for a future audit. Here are some guidelines.

Nonprofits....busy preparing your books and budgets for the next fiscal year? Here’s what you should focus on to prepare for your next audit.

First things first—what does an audit entail and do all nonprofits need one?

An independent audit is an examination (by an "independent" auditor) of a nonprofit’s financial records, accounts, business transactions, accounting practices, and internal controls.

No, not every charitable nonprofit is mandated to conduct an independent audit. Some organizations are required by state or federal law to conduct one, because of the size of their annual budgets. A charitable nonprofit has a choice whether or not to conduct an independent audit in other circumstances.

Check out this guide to see if your state of residence requires an audit. As for Rhode Island and Massachusetts—they both require audits from all charitable organizations when annual gross income exceeds five hundred thousand dollars ($500,000).

4 suggestions for nonprofits

Here are some suggestions for nonprofits based on common mistakes organizations make:

  1. It’s helpful to track restricted grants, gifts, and donations- Restricted grants, gifts and donations are often given to nonprofit organizations, and as the name suggests, they come with restricted guidelines from the donor. Your Organization must document the receipt and disbursement of the restricted donation to ensure the purpose of the donation has been met.
  2. Tracking documents that require signatures is important. As part of the audit, you might need to provide documents that verify an approval process. It is important your Organization maintain this information in a central and secure location to ensure these documents are easily attainable.
  3. Your organization would benefit from having a digital archive system- How easy is it for your finance team to find critical documents? A lot of organizations do not have the technology in place to make this easy. Having everything on paper creates time delays and frustrations for your finance team. There are advanced archival systems available that can better organize items needed for an audit.
  4. Discuss cash flow issues; don’t wait until it’s too late- If budgets and cash flows are off target after the fiscal year is underway, organizations can find themselves in a lot of trouble if they ignore the problem by not addressing the problem with financial advisors and hence letting it escalate. This will of course impact the audit. A way to solve this? Schedule monthly calls between the finance team and bookkeeper/accountant. That way you can make sure financial expectations are being met.

Now is a great time to reevaluate your nonprofit’s workflow and infrastructure. Adequately preparing for an audit will ensure that your organization can continue in a successful direction.

Questions? Contact a member of our Not for Profit Services Team.

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