Filed under: Audit & Assurance
By Sarah Wine, CPA
As an employee at a not-for-profit organization required to have an annual audit, you know that audit preparation and audit fieldwork can be overwhelming and time consuming. However, by implementing the following 10 tips on preparing for a successful audit (plus 5 bonus tips for those preparing for a federal compliance audit), you will be able to reduce your preparation time and feel more confident when your auditors arrive for fieldwork.
1. Ask questions during the year, do not wait until fieldwork. If an unusual transaction occurs or you are thinking about entering into a new transaction, give your auditor a call. When you call your auditor in advance they can assist you with using the correct accounting treatment the first time around instead of correcting it on the back end. Also, if you are thinking about a new transaction your auditor can enlist the assistance of federal, state and local tax professionals in order to provide a three-pronged approach to analyzing possible implications to the transaction before it occurs.
2. Remember to document, document, and document during the year. For example, ensure donor documentation is obtained and retained for every contribution received. Or, if an unusual transaction occurs, keep documentation related to your decision-making process. Ensuring proper documentation is retained will allow you to more quickly provide supporting documentation for selections requested by the auditor and will avoid any unnecessary time spent searching other records.
3. Do not wait to perform reconciliations until year-end, perform them monthly or quarterly throughout the year. Completing reconciliations monthly or quarterly allows you to identify, investigate and resolve reconciling items in a timely manner. If you wait until year-end, you may not have enough time to resolve the issue prior to the audit and the compounded effect of many reconciling items may make it more time consuming to resolve.
4. If your audit is a multi-week engagement, consider asking for a few days off in the middle or ask for a full week in between. This will allow you to get caught up on your day-to-day tasks and to complete any follow-up requests from the first week of fieldwork and may help you feel less overwhelmed.
5. Set-up an early planning meeting with your auditor and request to receive the prepared-by-client listing before your organization’s year end. By having your planning meeting early you will be able to communicate current year events, which may trigger additional consideration or research on behalf of your auditor that can be completed prior to fieldwork. Also, by receiving the prepared-by-client listing in advance of your year-end you may incorporate these items into your annual close process, which may reduce duplication of work and will allow you to prepare for the audit well in advance of fieldwork.
6. Again, ask questions. If something on the prepared-by-client listing does not make sense to you, ask your auditor before preparing the item. You can provide valuable insight into what reports are available to aid the auditors in completing their audit. In fact, you may know a better way to test an account balance than the auditor had originally anticipated, based upon their original requests.
7. Index the items you provide the auditors to match the numbering in the prepared-by-client listing. This will reduce the number of questions from the auditor regarding where items are, and will make it easier for you to do your own check compared to the prepared-by-client listing to determine your own readiness for the audit.
8. Send population listings to the auditor four weeks in advance to ensure you receive their selections at least two weeks in advance of fieldwork. This will allow your employees sufficient time to pull the supporting documentation for the auditor’s selections in advance of fieldwork instead of during fieldwork, when other follow-up requests will arise from documents previously provided.
9. Provide your auditor with the trial balance one week in advance. By providing the trial balance one week in advance, the auditor will have time to add the trial balance into the audit software and will be able to group any new accounts into the financial statement line item categories. This reduces unnecessary delays when the team arrives on the first day of fieldwork.
10. Once the audit starts, relax. If you implemented steps 1 through 9, your audit should go smoothly. Remember, like all good things, audits only happen once a year.
Here are five bonus tips for those preparing for a federal compliance audit along with your financial statement audit:
1. Upon receiving a new federal award, review the award documents and complete a summary sheet with all of the pertinent information for your accounting and program staff. A summary sheet allows you to efficiently communicate the requirements to all applicable staff and reduces the likelihood of non-compliance due.
2. Use your accounting software to separately track all revenues and expenses of each award. The reporting from your accounting system based on the separate tracking will make reporting to the federal agency and preparing the schedule of expenditures of federal awards more efficient.
3. Use calendar reminders for accounting and program staff. Reminders will allow both accounting and program staff to ensure reporting is prepared and submitted on a timely basis.
4. Ensure all staff working on federal programs complete after–the-fact time and effort reporting that is signed by either the employee or the employee’s supervisor at least monthly. This is required and is often an area of non-compliance for federal funding that is in the form of a cost reimbursement grant which reimburses for payroll costs.
5. Create and implement a procurement policy that is in accordance with state and federal requirements, and provide proper training to employees about this policy. This is required and is often an area of non-compliance for federal funding that is in the form of a cost reimbursement grant for non-payroll costs.
In summary, these tips should allow you to be prepared for the arrival of your auditors and the successful, timely completion of your audit. To quote Henry Ford, “Before everything else, getting ready is the secret to success.”
© Clark Nuber PS, 2014. All Rights Reserved
