Periodically, nonprofit organizations have to submit audited financial statements to federal and state grantors, contributors, boards of directors, and lenders to illustrate how the organization is performing financially. A nonprofit financial statement audit provides the highest level of assurance that an organization’s financial statements are presented fairly and free of misstatements.
Laying the Foundation for a Successful Nonprofit Financial Statement Audit
For many organizations, the audit process feels very cumbersome and overwhelming. These feelings can easily be turned into a positive experience that yields returns many times over on the audit investment. Here are six steps for building the foundation for a successful nonprofit financial statement audit:
- Know the audit regulations applicable to nonprofits. Whether it be the OMB Uniform Guidance (Single Audit Compliance), state single audit act (depending on the state), and/or a state that requires an audit, understanding the rules that govern the audit process can ensure that an organization receives the necessary services to meet its statutory obligations.
- Implement a thorough procurement process. When selecting an auditor, focus on independence, continuing professional education, peer review results, and, most importantly, experience. Fees should not be the primary driver in selecting an auditor.
- Be ready for the audit. Get the house in order by reviewing policies and procedures, performing and/or updating risk assessment, assembling corporate documents, updating organizational charts, assembling correspondence with funding sources, compiling minutes of the governing board, and reconciling general ledger to subsidiary ledgers and supporting documentation. Most importantly, review financial records for accuracy.
- Monitor audit progress. Stay involved in the audit process from start to finish. The engagement letter explains the responsibilities of management and the auditor. Insist on an entrance and exit conference, as well as periodic updates from the auditor throughout the engagement.
- Carefully review the draft audit report. After reviewing the draft audit report, management should post any audit adjustments and reconcile the adjusted trial balance with the audited financial statements.
- Prepare a response to findings. If the audit contains findings related to its financials or grant compliance and controls, management may be required to prepare a response and a corrective action plan. The corrective action plan should be designed to achieve a successful resolution to the findings and include follow-up monitoring to help ensure the deficiency does not occur again.
Plan on CRI for Your Nonprofit’s Audit Preparation Assistance
Starting the audit process on stable ground can help yield positive results. By following these six steps, you and your organization can hopefully reap the rewards of a successful audit. For audit preparation assistance, contact your local CRI nonprofit CPA.