Are you ready for your audit? What kind of question is that, you may think. Why should you be ready in December? Most audits are annual and happen in spring of the following year. There is plenty of time to get ready for your audit next year. Why the rush?
What is an audit for?
An audit is conducted by an auditor and provides a certain level of assurance on the correctness of the data presented. In the audit the auditor not only looks at the numbers and the underlying documentation but also at the internal checks and balances and internal adherence to agreed procedures.
What does an audit look at?
An annual audit, leading to an audit statement that accompanies your annual report, will focus on checking everything you present in that report. Not only the numbers in the financial statement but also statements you make in notes and numbers and other information you present in the narrative part.
How is that done?
First of all, your auditor will of course look at the financial statement. Using that as a starting point, they will zoom in on different blocks of that statement for more details. You are expected to be able to provide them with a breakdown of the data that you used to calculate the numbers in a block. And to present them with the documentation underlying these data, such as invoices and pay slips for instance.
Next, your auditor may ask to see proof of the arrangements (like in a contract), proof of existence of the things you paid for and proof of payment. Throughout these checks the auditor will verify that the expense was authorized by someone with the mandate to do so and paid by someone who has the mandate for making payments. To name a few of the most common checks.
Anything else?
Auditors are not working in a void. More and more they are also checking compliance issues that you might think are not directly finance related. For instance, they check sometimes part of your personnel files. They may check compliance with the GDPR or similar data security legislation. They may look into your IT infrastructure to assess security issues there.
So, what does this mean for me?
If you want the audit to be smooth and as fast as possible, it is best to prepare everything the auditors will want to see. Auditors usually hand out a so-called Prepared By Client list (PBC list), listing different documents they will want to see. Often you can upload these documents in their secure online portal before the start of the audit. During the audit itself, the auditors will follow up with questions on these documents as well as with samples of items they want to see more in detail.
Tips
Apart from the obvious tip: make sure to submit all required documents before the start of the audit, my main tips are:
- Make sure you present all documents in a way that is understandable for someone other than yourself. Someone who has not just spent hours, days, or weeks with those data and documents. Explain your calculations, highlight important parts of documents, number documents clearly and consistently, etc. Be friendly to the reader.
- Test your own administration. Can you easily locate documents? Are all paper trails complete? That is, did everyone sign the papers they needed to sign? Do you have all contracts underlying invoices? All procurement documentation underlying contracts? Etc. etc.
Now what?
Make a planning for yourself to be ready in time. And make a plan for next year, in which you build in routines for regular checks on these issues. That will help you save time in preparation of the next annual audit!
How I can help
Here is how I can help you set up your nonprofit finance and admin professionally so you can stop worrying about this:
- If you would like to know what admin steps you need to design and implement for proper donation management, my workshop Donation Received – Now What? Can help you. You can get that here: https://www.changingtides.eu/donationnowwhat
- If you have your donation policy and SOPs for managing donations, and you’d like my professional opinion, I create a personal video review for you: https://www.changingtides.eu/reviewdonationssops
- If you would like simple steps to set up and organise your finance & admin foundations guidance by me, you can get a bundle of six simple and short workshops here: https://www.changingtides.eu/financeandadminbundle
If the bundle is too much for you at this moment, feel free to pick one or more of the workshops individually:
- Set up your financial processes: https://www.changingtides.eu/financialprocesses
- Understand important basics of bookkeeping for nonprofits: https://www.changingtides.eu/bookkeepingfoundations
- Be sure you are keeping all the documents you need for project donors, auditors, or officials: https://www.changingtides.eu/documentationfornonprofits
- Plan your cash flow for a year: https://www.changingtides.eu/cashflowfornonprofits
- Get a feel for how time sheets can be helpful to everyone in your nonprofit and set them up straightaway: https://www.changingtides.eu/timesheetsfornonprofits
- Learn how to calculate the price of time spent of your team members, including allocations for general costs that are used in different projects: https://www.changingtides.eu/feesfornonprofits
Please note, the bundle is cheaper than buying all six workshops separately: https://www.changingtides.eu/financeandadminbundle
Want to know more and ask questions?
If you want to discuss this more – jump into my nonprofit support community and get input from a wide range of peers and from myself!
Here is how you can join my free nonprofit support community
You can join my free nonprofit support community on the Heartbeat platform here. This group is a safe space for open exchange and discussion on potentially sensitive topics like boards, nonprofit management, fundraising, etc.
You can visit the community via a browser or via an app. Here is the link to download the Heartbeat chat app in the Google Play store.
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