Grab this amazing FREE E-BOOK to ensure a stress-free, quick, and painless audit!
I had a few alternative titles for this post.
Audit Prep: You’re Already Behind the Eight Ball
Audit Prep: Shape Up So They Can Ship Out
Audit Prep: No Management Letter Comments, No Cry (sung to the tune of Marley’s No Woman, No Cry)
Joking aside, the audit can be one of the most stressful weeks (or months!) of a nonprofit ED’s year. Not only are you expected to make sure every single journal entry is properly booked, but you’ve got HR files and donor letters and receipts from a year’s worth of expenses to be sure are coded, organized, and easily accessible. Not to mention the things that can be just plain confusing: temp restricted net assets, anyone?
The auditor’s arrival to your office does not have to be the worst moment of your year (and in fact, it shouldn’t – they truly are here to help us!) and I’ll give you six action items to ensure it’s as smooth as can be.
1. Fix any prior year issues. As soon as the auditors sent you that final report and management letter last year, you should’ve started tackling their comments right away to make institutional changes to fix any issues. If you didn’t jump on that, jump now! You need to demonstrate you’ve taken their recommendations seriously and have made substantial effort to correct any issues. This is important to all stakeholders to ensure we’re maximizing and being good stewards of our resources to further our mission.
2. Practice ongoing communication with your auditor. This should not be the first time you have spoken with your auditor since they walked out last year. Most good firms will be in communication throughout the year on new regulations, best practices and be available to answer your questions as they come up. Audit week is NOT the time to ask how to track your temp restricted net assets – be prepared for an auditor brain explosion if you ask her.
3. Familiarize yourself with the PBC list. If you haven’t already, ask your auditor now (seriously, GO EMAIL HER NOW!) for the PBC, or Provided By Client, list. This is a comprehensive list of everything the auditor needs both prior to on-site and when they arrive. Here’s a great sample list.
4. Create an internal team game plan. As soon as I have the PBC list in my hands, I schedule a team meeting and assign a person responsible and a deadline to each item. We also have a year end close deadline list (e.g. soft close on January 15th, review reports and fix any issues by January 22nd, hard close by January 31st) which helps determine when PBC list items can be completed. The final part of the game plan is our brief weekly check-ins on the status of each item until the auditors arrive.
5. Start early. If you’ve got enough capacity in your finance team to do so, I recommend tackling as many items as you can simultaneously with closing the books for the year. You’ll likely be asked for personnel and finance policies, employee lists, check registers and other items that can be sent immediately.
6. Double-check every submission. I think we can all relate to this: we work really hard to complete the temp restricted net asset schedule quickly this year, send it off to the auditor before we officially close the books and realize that there was an edit which throws off the whole balance. While you can send many items early, you should wait until your books are absolutely final to send all your schedules. Remember, everything must agree – general ledger vs. schedule vs. balance sheet and income statement – and a surefire way to ensure this is to wait until your books are solidly closed. You don’t want to show the auditors fifteen different reconciliations later to show how you made the changes.
The six action items above will help ensure a smooth audit process even before the auditors arrive. Remember, preparation is crucial to a smooth audit – stay organized and you’ve got this!
Don’t forget to grab this amazing FREE E-BOOK to ensure a stress-free, quick, and painless audit!
How do you feel about the annual audit? Do you view it as a learning opportunity or pure agony?
Need help getting your ducks in a row for this year’s audit? Give me a buzz!
