Establishing a Good Audit Relationship

November 28, 2017

Many nonprofits are required to have an annual audit, either because of state and federal laws or at the request of funders. Just the word “audit” can stress out the most organized nonprofit leaders. Yet, we suggest nonprofit managers embrace the benefits of working with an audit team, rather than stressing the event.  If a strong relationship is built, a nonprofit has an immediate resource to ask questions when FASB changes occur and the like.

The audit creates an opportunity to help measure the positive impact of the nonprofit. A mission-driven organization must be able to demonstrate the impact of financial donations and grants. A strong audit partner can help nonprofit leaders understand the fundamentals of a well-run accounting department and can give feedback about:

  • Internal controls – An audit can identify weaknesses in this area.
  • Documentation – Auditors can point out insufficiencies, areas for needed improvement, and items that the IRS could potentially dispute.
  • Policies and procedures – Because of their expertise, a good auditor can make suggestions based on the policies and procedures of similar nonprofits.
  • Reporting needs – An auditor can offer suggestions for improvements needed in accounting, reporting, and operating procedures.
  • Process improvements – Implementing the auditor’s suggestions now can make next year’s audit much easier for both the organization and the auditor

Proactive nonprofit leaders can help make an audit go more smoothly by:

  • Establish a year round relationship with your auditor. Don’t just talk to them the few days they are on site reviewing your accounting.
  • Holding staff accountable to being prepared for the audit.
  • Encourage the staff to be collaborative and helpful the auditors. They auditors understand you are short staffed and can offer efficiencies.
  • Using technology that will allow auditors to access information remotely – including the accounting system, bill payment platforms, expense reporting platforms, online bank statements

A successful audit relationship will bring nonprofits:

  • An enhanced accounting discipline
  • Best accounting practices
  • Donor and community confidence
  • Additional fraud deterrence
  • A commitment to fiscal responsibility and accountability

Smart nonprofits will embrace the accountability that comes with an audit relationship. These organizations will appreciate an auditor’s expertise and knowledge which enhances fiscal responsibility. In turn, the nonprofit will continue to provide mission-focused services.