The Top 4 Ways to Reduce Audit Stress

For many nonprofit leaders and their accounting and finance teams the annual audit can be a stressful and disruptive time, commanding considerable staff resources. This should be the exception, not the rule. There are year-round strategies to help make audit time a less stressful experience.

  1. Storing required audit documents throughout the year

An auditor’s PBC list does not change much year to year so the documents required for an audit should not be a surprise. Set up a digital audit file each year and save the necessary documents as the year progresses, rather than trying to locate them at the end of the year. Some of the typical documents that appear on every PBC list include:

  • Articles of Incorporation
  • Bylaws
  • Board and Finance Committee Minutes
  • New and Existing Contracts and Agreements
  • The Accounting Manual
  • The Personnel Manual
  • Current Fiscal Year Budget (Board approved)
  • Support for Cash Receipts and Accounts Receivable
  • Support for Cash Disbursements and Accounts Payable
  • Supporting schedules and/or reconciliations for all Statement of Financial Position accounts
  • Signed Compliance Documents
  1. Following compliance procedures monthly

Relative to Compliance Documents, there are several items that should be reviewed and approved by the CEO/Executive Director as part of each monthly financial close. Trying to gather these documents and the required signatures at the end of each year is not only stressful, but it is also noncompliant as it defeats the purpose of regular review by organization leadership. Examples of Compliance Documents for regular review and approval include:

  • Bank Statements and Reconciliations
  • Investment Account Reconciliations
  • Journal Entries
  • Payroll Summaries
  1. Creating a monthly close checklist and workbook

Following a monthly close checklist will help to ensure steps are taken on a regular basis throughout the year to help prepare for the audit, including saving pertinent documentation, reviewing and approving Compliance Documents, and making the required monthly journal entries. A monthly close workbook should include many of the schedules that will be required for the annual audit. Updating and reconciling these schedules monthly will save considerable staff time when the annual audit rolls around.

  1. External periodic financial statement reviews

Not all nonprofits can afford to deliver on their mission and employ the level of accounting expertise required for their organization. In this situation an external periodic review performed by a reputable accounting firm specializing in nonprofits is typically a low-cost investment and can be extremely valuable.

  • A quarterly review, for example, may require only 2–3 hours of the reviewer’s time making the process very affordable for the nonprofit.
  • The reviewer will identify red flags in the accounting file before they become significant and costly problems.
  • The reviewer can train internal accounting staff as needed to ensure that mistakes are minimized in the future.
  • If desired, the reviewer’s firm can provide higher level advice, as little or as much as needed, at the client’s request. This could include guidance on proper revenue recognition or assistance with the development of the optimal chart of accounts for the nonprofit.

There is no reason to lose sleep over your annual audit if reasonable efforts to prepare for the audit are consistently executed throughout the year.  Internal planning and procedure development and/or assistance from an external reviewer will reduce anxiety during your audit season.

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