9 Steps to Prepare for Your Next Audit

Make your next audit smooth.

The year-end audit at a nonprofit is a stressful time. It takes the average nonprofit organization one to three months to prepare for an audit. If you’ve processed monthly closes promptly, preparing for an audit takes less time (and less stress). If you’ve let things slide, or you’re so short staffed that you’ve had to put off monthly closes to focus on other tasks, it’s going to take longer to catch up.

But we have a surprise for you. We’ve put together these steps to help you prepare for your next audit that save time, reduces stress, and develops a better process. And while these steps won’t actually do the work for you, they will help keep you on task and focused as you prepare for the year-end audit.

You can also download this handy checklist from the National Council of Nonprofits, print it, and keep it as a reference tool. The checklist will help you remember the most important items to prepare.

9 Steps to a Less Stressful Audit Prep

1. Place hard copies of all-important documents (leasing agreements, contracts, grant documents, policies) in files. Mark the files with the topic and give them to the auditors on the first day. This will help them dig right into the facts they need to start their work.
2. Gather prior year expenses from staff, vendors and consultants. Set and keep a firm deadline to collect all previous year expenses. Be relentless about sending reminders. Closing the books and finding out later that someone forgot an expense is frustrating and time wasting. The more you remind the staff and enforce the deadlines, the better the compliance rate.
3. Conduct a physical inventory. This includes all tangible assets as well as materials sold through shops, bookstores, etc. Equipment should be inventories and last year’s inventory also provided to the auditors.
4. Review and update A/R and A/P. Contact anyone holding an outstanding check that remains uncashed. Reconcile bank accounts and credit cards promptly.
5. Review schedules and policies for the organization. Be sure to update all financial policies, too, and gather them together for the auditors to review
6. Update the internal controls for the organization. Now is also a great time to a refresher training on the organization’s internal controls, especially if you’ve hired new people during the year or people have been getting sloppy about following procedures.
7. Gather all documents about Board governance. Include meeting minutes, a list of who is on your Board, and who holds a position and the name of the position on the Board.
8. Review and update personnel files. This includes organization charts, salary information, raises and increases, bonuses, and other information. Job descriptions can also be updated at this time.
9. Double check your accounting system. Review the chart of accounts, double check accrual calculations, and manual journal entries. Also, check any financial transactions that may be a ‘gray area’ to your organization’s mission and in-kind transactions. You may want to flag them and provide additional information or background on the transaction to help the auditors understand the context of the information.

Audits provide valuable information and help nonprofits maintain transparency and clarity with the public, donors, and other organizations about their finances. Help your team prepare for a great audit experience and lessen everyone’s stress in the process.

If you want to automate all these steps, you may want to consider implementing a fund accounting software system. If your system doesn’t provide these automations, give us a call and we can help you streamline your audit process!

EMK Inc. – Your Partners for Nonprofit Accounting Software Success

Since 1993, EMK Inc. has helped nonprofits and government agencies with their accounting software choices and implementation. We install AccuFund financial software and provide ongoing support to nonprofits, endowments, government agencies, and others seeking software that’s built to work with how nonprofits manage their money. For more information or to speak with someone about AccuFund, call EMK Inc. at 888-443-9399 or contact us.