No not-for-profit looks forward to annual audits. But regular maintenance and preparation specific to an impending audit can make the process less disruptive.
We recommend taking the following steps:
1. Reconcile routinely
You shouldn’t wait until audit time to reconcile accounts — for example, 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. And don’t forget to reconcile database information provided and maintained by non accounting departments, such as contributions, events revenue, registration revenue and sponsorships.
2. Prepare supporting documentation
Collect all supporting documentation before your audit and if anything is missing, alert auditors immediately. It might be necessary to request duplicate invoices from vendors or ask donors for copies of letters describing restrictions on contributions.
3. Assemble the ‘Client Request Letter’ list items
As part of our planning process, W&D typically compiles a detailed client request letter which includes a list of materials they expect you to produce. The list includes a timeline indicating when the each type of materialis needed. It is important too submit everything on the list according to the timeline. If you don’t, you could push back the audit itself and miss your board deadline for completion. Also, to ensure accuracy, perform a self-review of all information before you sen.
4. Be ready to explain variances
Before your auditors arrive, identify major fluctuations in your account balances compared to the previous year. Your audit team will inquire into significant variances in revenues and expenses. Make sure you’re ready to explain them — as well as budget variances — promptly and clearly.
5. Review earlier 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. Also confirm that you posted all of the audit entries from the last audit. If you didn’t, your financial statements might be distorted.
Year-long relationship
Don’t think of audits as a once-a-year obligation. Keep in touch with your W&D team throughout the year. For example, if you land a new grant or contract and aren’t certain how to properly record it, don’t hesitate to reach out to your Warady & Davis LLP advisor.
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