To some, this question is equivalent to “Why would I stick a red-hot poker in my eye?” Going through an audit doesn’t have to be the worst experience in your life, but that isn’t the topic of today’s posting. I frequently get the question “Why do non-profit organizations need an audit?” There are many reasons why your financial statements should be subjected to the scrutiny of independent certified public accountants. Here are the most common ones:

• The by-laws of the organization require an annual audit of the financial statements.
• Affiliated fund raising organizations, such as United Way, may require recipient organizations to have an audit as a condition of receiving allocations.
• Lending institutions may require audited financial statements before making a loan and in each year that the loan has an outstanding balance.
• Potential donors, especially foundations, may ask for a copy of the most recent audited financial statements. Although it may not be a prerequisite to receiving funding from them, it is a tool that the foundation can use in its decision-making.
• The federal or state agency from which you are seeking funding requires an audit.
• Management and/or the Board of Directors believe that it is a “best practice” to have an annual audit.

This last reason is the one that I like the most because there is no outside interest that is forcing an audit. I have a friend who recently became a controller at a local church that had never been audited. He requested that his Board of Trustees hire a CPA firm to conduct an audit because he wanted to start his tenure with a clean slate and to have full accountability. What better way to demonstrate to your Board that you are above board, capable, and fiscally responsible than to open your books and records to professionals trained in auditing that will provide an opinion on whether the financial statements are free of material misstatements.

If you’ve never had an annual audit (or it has been a long time since your last audit), some may ask when you should start. Following are a few ideas:

• A year or two before launching a capital campaign
• If there is an expectation that you may be involved in a merger or acquisition
• Before starting a new program that may require some creative funding
• Construction of new facilities that may require interim or permanent bank financing

If you are wondering if the organization you are involved in should have an audit of your financial statements, give us a call.

Whether your annual audit is approaching or this will be your business’ first audit ever, an audit can seem like a daunting event. But there are ways to make this potentially painful event pass with minimal frustration:

10. Begin working on your schedules weeks before the audit occurs, you might have questions and your auditor is just a phone call or email away.
9. Keep track of issues you struggled with during the year. It will help the auditor key in on important areas at the beginning of the audit.
8. Get the confirmations back to the auditors quickly! The more time there is to send these out the better chance the auditor receives the accurate information. Not getting them back causes more work for all parties involved.
7. Communicate your schedule to the auditors. This helps the auditor work around your normal responsibilities.
6. Make all your adjustments to your trial balance before you provide it to the auditor.
5. Those schedules we talked about earlier make sure they tie to that final trial balance.
4. Make needed documentation easy to access and provide it to the auditors as soon as possible.
3. Be available! Here’s a tip, set aside time on your calendar devoted to auditor questions and audit prepwork.
2. Implement good segregation of duties among your staff. The more checks & balances you have the less likely you are to have errors or issues.
1. Don’t do anything fraudulent or misleading during the year. (Always a plus). Tell the truth.

The key to success is communication and preparedness. If you apply these steps you should see a reduction in the amount of friction an audit can cause.