Preparing for an Audit

Audits are a vital tool for maintaining the integrity, accountability, and sustainability of nonprofit organizations. They help ensure that resources are used effectively to achieve the organization’s mission and goals. Preparing for an audit involves several key steps to ensure that your records, processes, and systems are in order. Here’s a comprehensive guide to help you get ready:

1.  Understand the Scope and Type of Audit

• Know the Purpose: Determine whether it's an internal audit, external audit, financial audit, compliance audit, or operational audit. This will help you identify what the auditor’s expectations are and what type of information needs to be provided.Review Relevant Standards and Regulation

  2. Review Relevant Standards and Regulations

• Regulatory Requirements: Familiarize yourself with the standards and regulations applicable to your industry.

  3. Organize Your Documentation

• Financial Records: Ensure all financial statements, ledgers, invoices, receipts, and bank statements are complete and up to date. Reconcile all balance sheet accounts and prepare schedules to support the balances, such as accounts receivable and accounts payable aging reports. Compile tax documents such as payroll tax filings. Make sure there is supporting documentation for all transactions, such as revenue receipts or invoices paid.
• Operational and Internal Control Documents: Collect policies, procedures, manuals, and workflow documents. In addition, collect minutes from meetings such as Board and Finance Committees. Implement proper segregation of duties to prevent errors and fraud. Ensure that effective internal controls are in place and documented. 
• Compliance Records: Gather documents related to regulatory compliance, licenses, permits, and certifications.
• Contracts and Agreements: Organize agreements relating to leases, loan agreements, service contracts, and insurance policies.

4. Conduct a Self-Audit and Prepare Your Team

• Internal Review: Perform an internal audit to identify potential issues and areas for improvement.
• Checklists: Use audit checklists to ensure all necessary documentation and processes are in place.
• Roles and Responsibilities: Define and communicate the roles and responsibilities of team members involved in the audit. Provide training on audit processes and what to expect during the audit.

5. Communicate with the Auditor

• Pre-Audit Meeting: Arrange a meeting with the auditor to discuss the audit process, timeline, and any specific requirements. Be prepared to answer any questions related to fraud risks within the organization.
• Provide Information: Supply the auditor with any requested preliminary information.

6. Set Up a Workspace for the Auditor

• Physical Space: Prepare a designated area for the auditor to work in, ensuring they have access to necessary documents and system.
• System Access: Provide access to relevant electronic records and systems such as read-only access to QuickBooks Online or BILL.

7. Respond to Findings

• Action Plan: Develop an action plan to address any issues or findings identified during the audit.
• Continuous Improvement: Use audit findings to improve your processes and controls. Document the intended changes in your Accounting Policies and Procedures Manual.

Additional Tips

• Stay Organized: Maintain an organized system for storing and retrieving documents. This should typically include an electronic filing system that restricts access to necessary users.
• Be Proactive: Address potential issues before they become problems.
• Open Communication: Foster open and honest communication with the auditor. This can be done during the year to get ahead of issues that may arise during the audit.

By following these steps, you can ensure that your organization is well-prepared for an audit, minimizing stress and maximizing the opportunity for improvement.