Lately, relationships between nonprofit organizations and their auditors have seen optimistic change. Auditors are seen much less by nonprofits as once-a-year guests and extra as year-round trusted advisors.
Your auditor’s year-end work will stay important to make sure the monetary integrity of your nonprofit’s books and information and compliance with ever-changing rules. Audit corporations have now, nonetheless, transitioned to long-term companions, notably for nonprofits considering transformative system or operational modifications.
The Audit Relationship: Then and Now
Change administration has not traditionally been an space the place nonprofits consulted their auditor. Nonprofits would generally modify or overhaul their programs and controls with out partaking their auditors. Audit groups would then be caught off guard, unaware of both newly carried out accounting programs, new chart of accounts, or modifications in processes and administration roles. As a result of the groups weren’t ready on the year-end audit for some of these important modifications, there have been usually points that required auditors to spend extra time in discussions with administration or to doc their understanding of the modifications.
Six Greatest Practices for a Stronger Audit Relationship
Now, nonetheless, nonprofits and auditing corporations usually tend to share and leverage their various experiences to raised collaborate with each other. Listed below are six greatest practices your nonprofit group ought to undertake to extend collaboration and improve its relationship together with your audit agency.
1. Set and Perceive Expectations
On the outset, each your nonprofit group and audit workforce ought to agree on the scope, targets and timeline of the audit course of and who’s chargeable for every job. By setting expectations early, your group and audit workforce can each adequately put together for, handle and streamline not simply the audit course of, but additionally any difficulty or query which will come up through the 12 months.
These questions could possibly be centered round a big contribution that the group obtained that they weren’t anticipating, and if the group is correctly recording it. Possibly the group wants extra assist understanding new accounting steering that’s efficient and the impacts on its monetary information. Or presumably the group is updating their inner controls and needs to ensure their modifications are adequate and cheap.
I encountered a scenario the place a nonprofit group would repeatedly report the contributions it obtained incorrectly. To alleviate the necessity for adjusting entries through the audit, we devised a plan to work with the finance and growth departments of the group at any time when a considerable contribution was obtained to make sure it was recorded appropriately within the group’s normal ledger. After a handful of discussions, the group understood the errors and have been in a position to correctly report the contributions with out our help. It’s vital that the nonprofit and audit workforce have these discussions all year long so there aren’t any surprises through the audit.
2. Create Clear Channels of Communication
Efficient communication is the inspiration of any profitable relationship. Your nonprofit ought to set up clear channels of communication with its audit workforce earlier than the audit begins.
With most audit work being carried out remotely or with a hybrid schedule, clear communication takes on larger significance. As audit groups mix onsite with distant visits when performing audits, your group ought to maintain routine standing conferences and have open traces for dialogue and questions.
Clear and frequent communication channels will assist be sure that your audit is progressing easily. Many nonprofits have shifted to common quarterly check-ins with their auditor, generally even month-to-month. This has allowed for smoother and extra environment friendly audits.
One nonprofit we labored with was struggling to satisfy its monetary reporting deadlines and its audit would sadly lag behind the agreed upon timelines. The chief director and audit associate mentioned what could possibly be performed to enhance the method. They carried out weekly check-ins through the audit so each groups may focus on and collaborate on the best way to obtain the frequent purpose of finishing the audit. This new type of communication between group and audit agency allowed for the audit to be accomplished inside the agreed upon timeframe for the primary time in years and has solely turn into extra environment friendly by the years.
3. Proactively Interact
Auditors are actually extra concerned in discussions with administration relating to system revisions, expertise upgrades, or important organizational modifications. Proactively partaking together with your auditor on these issues can present constructive enter on potential implications, dangers, and mandatory changes which may not have been thought of in any other case. Being proactive may result in strengthening controls recognized as potential weaknesses throughout your audit. You may as well discover alternatives to regulate a recorded transaction that was beforehand misunderstood.
For instance, a brand new govt director joined a company we labored with. This govt director wished to broaden the income sources of the group to incorporate federal grants. This was one thing that the group had not performed beforehand. Earlier than they began making use of, the chief director reached out to us to schedule a name to debate this new strategy and to inquire about any modifications the group would possibly must make in its programs, software program, and most significantly inner controls. We have been in a position to focus on the varied intricacies and compliance rules that organizations should adhere to when receiving federal funding, and the nonprofit was in a position to make the suitable modifications internally to be higher geared up for these funds. It was this proactive communication that enabled this group to keep away from surprises and different roadblocks that generally happen when organizations begin working in new ventures with out taking the mandatory steps to equip their group to take action.
4. Collaborate
Audits are a workforce sport! Consider your auditors as trusted advisors to help your group in attaining its targets. Auditors possess useful insights and experience that may lengthen far past the presentation of your monetary statements. You possibly can make the most of your auditors to make sure your nonprofit is following its monetary practices, has satisfactory and environment friendly inner controls, and has recognized varied potential dangers. This sort of collaboration must be taking place all year long. Whereas this would possibly seem to be an awesome thought, working collectively together with your auditors to assessment these areas can usually result in enhancements in operational efficiencies and assist strengthen your nonprofit.
5. Educate
Your nonprofit group ought to spend money on coaching and persevering with schooling for employees members as usually as potential. This will help be sure that your nonprofit stays compliant with not simply present or future accounting requirements, but additionally with relevant regulatory necessities, resembling:
- Donor restrictions on contributions
- Federal compliance inside the Uniform Steerage necessities imposed on grants offered by the federal authorities
- Updates to your fund accounting software program which may change the way in which you pull studies or monitor your initiatives
Auditing corporations usually provide instructional workshops, seminars, webinars, and newsletters to assist their shoppers and the nonprofit group achieve readability on these points. As well as, a nonprofit ought to perceive the choices its expertise vendor presents for ongoing coaching. Very often, these distributors provide sources to assist nonprofits perceive higher methods to make the most of their software program to the most effective of its capabilities.
With how options are always evolving, this coaching must be checked out as ongoing and never one-and-done. Because the workers evolves so does the system, and your nonprofit ought to benefit from these studying alternatives.
6. Consider Publish Audit and Try for Steady Enchancment
As soon as your audit is full, your nonprofit ought to conduct a post-audit analysis each internally and with their auditors. Use this analysis to evaluate the effectiveness and effectivity of the audit, determine areas for enchancment, and replicate on the audit course of to raised put together for future audit engagements.
As a part of this analysis, assessment and focus on at size the administration letter issued by the audit agency, each internally and with the audit agency. That is particularly vital if there are audit findings. Whereas this letter can generally be perceived as important in nature or critiquing a company’s administration, the intent of the letter is to offer help and enhance the group. The suggestions offered on this letter might be integral in serving to your nonprofit repeatedly enhance its operations and monetary administration.
Administration ought to handle the findings with clear, concise, documented corrective actions plans. As well as, I’ve discovered that generally administration has used the findings in these letters as reinforcement to substantiate the considerations that they’ve addressed earlier with the Board.
Higher Relationships Imply Higher Enterprise Choices and Higher Outcomes for Your Trigger
It’s important on your nonprofit group to construct a robust relationship with its auditors, particularly one constructed on belief. Discover an audit agency that can present the standard audit or tax providers and turn into a trusted advisor year-round.
Having an audit agency that not solely understands how your group operates but additionally the mission of the group is essential. This understanding of a company’s mission ought to lengthen into the audit in order that the agency can present steering and greatest practices, and the group’s operations are optimized for fulfillment. This relationship is a crucial element of success for any group—and one which its audit agency would genuinely welcome.
In search of extra sources that will help you set your group up for audit success? Try our audit toolkit with greatest practices and a guidelines that will help you use your expertise to streamline your audit.
