5 Tips for Nonprofits To Prepare for a Successful Audit

Annual audits for nonprofits can be time-consuming, but regular maintenance and preparation for an impending audit can make the process less disruptive. Here are five essential steps you can take to prepare for a nonprofit audit.

1. Reconcile routinely

financial auditYou shouldn’t wait until audit time to reconcile accounts, such as cash, receivables, pledges, payables, accruals, and revenues. Reconcile general ledger account balances to supporting schedules (bank reconciliation, receivables, and payable aging) monthly or at least quarterly. Also, don’t forget to reconcile database information provided and maintained by other departments, such as contributions, events revenue, registration revenue, and sponsorships.

2. Prepare supporting documents

Collect all supporting documentation before your audit and alert auditors immediately if anything is missing. It may be necessary to request duplicate invoices from vendors or ask donors for copies of letters describing restrictions on contributions.

3. Compile the PBC list items

As part of their planning process, auditors typically compile a Provided by Client (PBC) list of materials they expect you to produce. The list includes a timeline indicating when the auditors need each type of material. Be sure to submit everything on the list according to the timeline. Otherwise, you could push back the audit itself and miss your board deadline for completion. You should also perform a self-review of all information before you send it to ensure accuracy.

4. Explain variances

Before the auditors arrive, identify major fluctuations in your account balances compared to the previous year. Your auditors will ask about significant variances in revenues, expenses, and budgets. Make sure you’re ready to explain them promptly and clearly.

5. Review past audits

Audits from previous years provide useful guidance. Check prior years’ audit entries and confirm that you didn’t make the same errors this year. In addition, verify that you posted all the audit entries from the last audit. If you didn’t, your financial statements may be distorted.

Questions throughout the year

Don’t think of audits as a once-a-year obligation. Keep in touch with auditors throughout the year for issues such as landing a new grant or contract and how to properly record it.

Contact us to discuss your nonprofit’s audit needs.

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