While it’s always a good idea to ensure your organization’s financial accountability through an audit, not all nonprofit organizations are required to undergo extensive audits on a yearly basis. As of now, if your nonprofit organization expends more than $500,000 or more in direct or indirect government grants and awards, you are required to undergo a single audit in accordance with the Office of Management and Budget (OMB) Circular A-133. You can determine if your organization is required to undergo this audit by reading our blog, “How the Proposed A-133 Changes Could Affect Nonprofit Organizations”. This single audit is similar to that of a traditional audit prepared by a CPA; however, it is conducted according to government accounting standards (also known as “Generally Accepted Government Auditing Standards”). Like a traditional audit, the auditor is required to determine whether the organization’s financial statements comply with the standards set apart in the government accounting standards.
Preparing your organization for a nonprofit financial audit can be stressful, to say the least. It requires you to stay on top of your organization’s financial processes throughout the year so you aren’t scrambling right before the scheduled audit. Over the years, we have audited several nonprofit organizations and have helped numerous nonprofits prepare for the dreaded annual audit. From our experience, we’ve compiled a list of tips designed to help you successfully prepare for your upcoming nonprofit financial audit:
- Make sure key staff are available on the days you’ve scheduled your audit to occur (this includes both preliminary and fieldwork). The auditor will need full access to your staff in case any questions or concerns arise during the audit, so make sure key staff members are aware of the upcoming audit and present.
- Review your client assistance letter and prepare the requested documents beforehand. This document is designed to help nonprofit organizations gather the right information for the audit, including details of internal controls, government contracts and summaries, and major program compliance. Your letter should include a timeline to help you prepare all of the necessary information before the auditor arrives to complete the final fieldwork. Make sure you review this letter with your staff as soon as you receive it, and relay any questions or concerns to the auditor as soon as possible.
- Make sure you have a thorough understanding of the compliance requirements for each of your government grants. Read over your grant agreement before your audit, and ensure that program staff are made aware of compliance areas that will need attention. This agreement will become a compliance roadmap for both you and the auditor, so make sure you know it well.
- Review the current OMB A-133 Compliance Supplement for an idea of additional compliance requirements.
- In order to determine whether a federal expenditure is an allowable cost, you need to have a thorough understanding of the cost principles applicable to your organization. This information can be found in OMB Circular A-133 – Cost Principles for Nonprofit Organizations. Once you are familiar with these principles, hold a meeting to discuss what is allowable under each federal grant and what is not. Determine if any unallowable costs can be identified and segregated in your current accounting records.
Preparing for a nonprofit financial audit takes time as you still have to continue managing the day-to-day tasks of running your organization. Auditors understand that you need time to prepare, and they are willing to work with your organization to answer any questions or concerns you have before the final fieldwork. For a detailed checklist designed to help your organization prepare for your upcoming nonprofit financial audit, click here.
Did you know Beck & Company can help you with your auditing needs as well as your accounting needs? Learn more about our accounting and auditing services for nonprofit and government organization.