Ensuring a Smooth Annual Audit
By Sarah Avery
Efficient engagements are ones in which nonprofit executives ask the following: What process should my organization have in place to prepare more proactively for the audit? How can we best integrate audit compliance requirements with organizational efficiencies?
The following suggestions will help you to create efficiency in the compliance and auditing process, sparing your staff and your audit team unnecessary delays and headaches that could cloud your financial picture and add costs to the fee set in your CPA's engagement letter.
Establish Accounting Policies, Procedures, and Responsibilities
Document policies and procedures so that your auditors can ascertain whether your transactions are in accordance with them. Implement a standing policy that each staff member update his or her job responsibilities annually in connection with an annual performance review. The job responsibility document should delineate between organizational processes and service performance and integrate human resources into the process.
Prepare a set of work papers to document the source of all amounts reported on the expenditure report.
Document the source of all amounts included in the fiscal budget preparation process. Set up a master schedule of due dates for contract receipts and contract reporting. Be sure that the accounting for contractual program revenues reflects the actual use of funds in conjunction with the organization's activities. Be proactive in contacting your funding sources when funds are not received based upon the expectations.
Establish a schedule for preparation of interim program reports and reconcile budget variances. Perform budget oversight on a timely basis to be able to respond to unanticipated changes in costs (both under- and overspending!). Maintain a comprehensive file for all active contracts and assure that the organization is in compliance with all of the terms.
Maintain separation between donated services, use of material, equipment, or facilities. Keep in mind that, while donations of services and the use of property are not reportable contributions for Form 990, they may be reportable on the organization's financial statements if they meet certain criteria.
First and foremost, document the method of allocating indirect expenditures on programs, management, fundraising, and general items. Keep in mind that some funding sources may not cover indirect expenses.
Require the board, audit committee, or finance committee to take responsibility for overseeing the annual audit. Encourage board members that have sufficient financial skills and training to stay involved and engaged in the oversight process. Require the board to approve the budget and oversee adherence to it.
Existing accounting best practices require unique treatment for restricted donations. Be proactive and make additional copies of donor-restricted contributions as you record transactions and build the audit file throughout the year.
Implement an "enterprise" approach to document management. Centralize electronic and paper information in a single database system. Organize all information centrally so that it is accessible to program, management, and fundraising staff.