Lately, relationships between nonprofit organizations and their auditors have seen optimistic 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 important to make sure the monetary integrity of your nonprofit’s books and information and compliance with ever-changing rules. Audit corporations have now, nevertheless, transitioned to long-term companions, significantly 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 all these vital adjustments, there have been usually points that required auditors to spend extra time in discussions with administration or to doc their understanding of the adjustments.
Six Greatest Practices for a Stronger Audit Relationship
Now, nevertheless, nonprofits and auditing corporations usually tend to share and leverage their numerous experiences to raised collaborate with each other. Listed here are six greatest practices your nonprofit group ought to undertake to extend collaboration and improve its relationship along with your audit agency.
1. Set and Perceive Expectations
On the outset, each your nonprofit group and audit staff ought to agree on the scope, goals and timeline of the audit course of and who’s answerable for every activity. By setting expectations early, your group and audit staff can each adequately put together for, handle and streamline not simply the audit course of, but in addition any situation or query that will come up through the yr.
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 adjustments are ample and affordable.
I encountered a state of affairs the place a nonprofit group would constantly 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 every time a considerable contribution was obtained 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 staff 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 staff earlier than the audit begins.
With most audit work being carried out remotely or with a hybrid schedule, clear communication takes on better 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 satisfy its monetary reporting deadlines and its audit would sadly lag behind the agreed upon timelines. The manager director and audit accomplice mentioned what could possibly be finished to enhance the method. They carried out weekly check-ins through the audit so each groups might talk about and collaborate on 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 grow to be extra environment friendly by way of the years.
3. Proactively Interact
Auditors at the moment are extra concerned in discussions with administration concerning system revisions, know-how upgrades, or vital organizational adjustments. Proactively participating along with your auditor on these issues can present constructive enter on potential implications, dangers, and needed changes which may not have been thought-about in any other case. Being proactive can even 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 corporation we labored with. This govt director wished to develop the income sources of the group to incorporate federal grants. This was one thing that the group had not finished beforehand. Earlier than they began making use of, the manager director reached out to us to schedule a name to debate this new strategy and to inquire about any adjustments the group may have to 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 staff 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 numerous potential dangers. This sort of collaboration ought to be occurring all year long. Whereas this may look like an amazing thought, working collectively along with your auditors to evaluation these areas can usually result in enhancements in operational efficiencies and assist strengthen your nonprofit.
5. Educate
Your nonprofit group ought to put money into coaching and persevering with training for employees members as usually as potential. This may also help be certain that your nonprofit stays compliant with not simply present or future accounting requirements, but in addition with relevant regulatory necessities, reminiscent of:
- Donor restrictions on contributions
- Federal compliance throughout the Uniform Steering necessities imposed on grants offered by the federal authorities
- Updates to your fund accounting software program which may change the best way you pull reviews or observe your initiatives
Auditing corporations usually supply academic workshops, seminars, webinars, and newsletters to assist their shoppers and the nonprofit group acquire readability on these points. As well as, a nonprofit ought to perceive the choices its know-how vendor provides 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 consistently evolving, this coaching ought to be checked out as ongoing and never one-and-done. Because the employees evolves so does the system, and your nonprofit ought to benefit from these studying alternatives.
6. Consider Submit 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 mirror on the audit course of to raised put together for future audit engagements.
As a part of this analysis, evaluation 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 important in nature or critiquing a corporation’s administration, the intent of the letter is to offer help and enhance the group. The suggestions offered on this letter will likely be integral in serving to your nonprofit constantly 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 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 Selections and Higher Outcomes for Your Trigger
It’s important to your nonprofit group to construct a powerful relationship with its auditors, particularly one constructed on belief. Discover an audit agency that can present the same old audit or tax companies and grow to be a trusted advisor year-round.
Having an audit agency that not solely understands how your group operates but in addition the mission of the group is essential. This understanding of a corporation’s mission ought to prolong into the audit in order that the agency can present steering and greatest practices, and the group’s operations are optimized for achievement. This relationship is a vital element of success for any group—and one which its audit agency would genuinely welcome.
Searching for extra assets that will help you set your group up for audit success? Take a look at our audit toolkit with greatest practices and a guidelines that will help you use your know-how to streamline your audit.
