Lately, relationships between nonprofit organizations and their auditors have seen constructive change. Auditors are considered much less by nonprofits as once-a-year guests and extra as year-round trusted advisors.
Your auditor’s year-end work will stay essential to make sure the monetary integrity of your nonprofit’s books and data and compliance with ever-changing rules. Audit companies have now, nonetheless, transitioned to long-term companions, notably for nonprofits considering transformative system or operational adjustments.
The Audit Relationship: Then and Now
Change administration has not traditionally been an space the place nonprofits consulted their auditor. Nonprofits would typically modify or overhaul their techniques and controls with out participating their auditors. Audit groups would then be caught off guard, unaware of both newly carried out accounting techniques, new chart of accounts, or adjustments in processes and administration roles. As a result of the groups weren’t ready on the year-end audit for a lot of these vital adjustments, there have been usually points that required auditors to spend further time in discussions with administration or to doc their understanding of the adjustments.
Six Greatest Practices for a Stronger Audit Relationship
Now, nonetheless, nonprofits and auditing companies usually tend to share and leverage their various experiences to higher collaborate with each other. Listed below are six finest 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 crew ought to agree on the scope, targets and timeline of the audit course of and who’s chargeable for every process. By setting expectations early, your group and audit crew can each adequately put together for, tackle and streamline not simply the audit course of, but additionally any problem or query that will come up through the 12 months.
These questions might be centered round a big contribution that the group acquired that they weren’t anticipating, and if the group is correctly recording it. Perhaps the group wants further assist understanding new accounting steering that’s efficient and the impacts on its monetary data. Or probably the group is updating their inner controls and desires to verify their adjustments are adequate and cheap.
I encountered a state of affairs the place a nonprofit group would repeatedly report the contributions it acquired incorrectly. To alleviate the necessity for adjusting entries through the audit, we devised a plan to work with the finance and improvement departments of the group every time a considerable contribution was acquired to make sure it was recorded appropriately within the group’s basic ledger. After a handful of discussions, the group understood the errors and have been capable of correctly report the contributions with out our help. It’s essential that the nonprofit and audit crew have these discussions all year long so there are not any surprises through the audit.
2. Create Clear Channels of Communication
Efficient communication is the muse of any profitable relationship. Your nonprofit ought to set up clear channels of communication with its audit crew 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 certain that your audit is progressing easily. Many nonprofits have shifted to common quarterly check-ins with their auditor, typically even month-to-month. This has allowed for smoother and extra environment friendly audits.
One nonprofit we labored with was struggling to fulfill its monetary reporting deadlines and its audit would sadly lag behind the agreed upon timelines. The manager director and audit associate mentioned what might be completed to enhance the method. They carried out weekly check-ins through the audit so each groups might talk about and collaborate on easy methods to obtain the widespread objective of finishing the audit. This new type of communication between group and audit agency allowed for the audit to be accomplished throughout the agreed upon timeframe for the primary time in years and has solely turn into extra environment friendly via the years.
3. Proactively Interact
Auditors are actually extra concerned in discussions with administration concerning system revisions, know-how upgrades, or vital organizational adjustments. Proactively participating together with your auditor on these issues can present constructive enter on potential implications, dangers, and needed changes that may not have been thought-about in any other case. Being proactive may result in strengthening controls recognized as potential weaknesses throughout your audit. You may also 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 completed 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 adjustments the group may must make in its techniques, software program, and most significantly inner controls. We have been capable of talk about the varied intricacies and compliance rules that organizations should adhere to when receiving federal funding, and the nonprofit was capable of make the suitable adjustments 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 required steps to equip their group to take action.
4. Collaborate
Audits are a crew sport! Consider your auditors as trusted advisors to help your group in reaching its targets. Auditors possess useful insights and experience that may prolong far past the presentation of your monetary statements. You’ll be able to 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. Such a collaboration needs to be occurring all year long. Whereas this may appear to be an amazing thought, working collectively together with your auditors to evaluate these areas can sometimes 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 training for employees members as usually as doable. This may help be certain that your nonprofit stays compliant with not simply present or future accounting requirements, but additionally with relevant regulatory necessities, similar to:
- Donor restrictions on contributions
- Federal compliance throughout the Uniform Steerage necessities imposed on grants supplied by the federal authorities
- Updates to your fund accounting software program that may change the best way you pull experiences or observe your initiatives
Auditing companies usually supply academic workshops, seminars, webinars, and newsletters to assist their shoppers and the nonprofit neighborhood acquire readability on these points. As well as, a nonprofit ought to perceive the choices its know-how vendor presents for ongoing coaching. Very often, these distributors supply assets to assist nonprofits perceive higher methods to make the most of their software program to the very best of its capabilities.
With how options are continually evolving, this coaching needs to be checked out as ongoing and never one-and-done. Because the employees evolves so does the system, and your nonprofit ought to make the most of these studying alternatives.
6. Consider Publish Audit and Attempt 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, establish areas for enchancment, and replicate on the audit course of to higher put together for future audit engagements.
As a part of this analysis, evaluate and talk about at size the administration letter issued by the audit agency, each internally and with the audit agency. That is particularly essential if there are audit findings. Whereas this letter can typically be perceived as essential in nature or critiquing a company’s administration, the intent of the letter is to supply help and enhance the group. The suggestions supplied on this letter can be integral in serving to your nonprofit repeatedly enhance its operations and monetary administration.
Administration ought to tackle the findings with clear, concise, documented corrective actions plans. As well as, I’ve discovered that typically 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 to 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 companies 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 prolong into the audit in order that the agency can present steering and finest practices, and the group’s operations are optimized for achievement. This relationship is a vital part of success for any group—and one which its audit agency would genuinely welcome.
Searching for extra assets that can assist you set your group up for audit success? Take a look at our audit toolkit with finest practices and a guidelines that can assist you use your know-how to streamline your audit.
