July 24, 2014


Ideas that work: Preparing for year-end audits

Andrew Payne

Andrew Payne

[Publisher's note: This article was provided by Blackbaud, a maker of fundraising software. Blackbaud is a PJ business partner.]

What's involved in preparing for your internal year-end closing? Depending on the size of your nonprofit, you'll have several responsibilities.

First and foremost, you'll need to prepare for your audit.

What is an audit?

Simply put, the purpose of an audit is to test the accuracy and completeness of the information presented in an organization's financial statements.

In addition to determining your financial accountability, there are many other benefits to performing an audit:

* You'll learn whether or not your financial practices are in accordance with generally accepted accounting principles.

* You'll get information that can be used as a budgeting and planning tool for years to come.

* The reports you prepare for your audit can also be used to satisfy your granting agencies, lenders and suppliers.

* You'll help prevent loss through theft and prevent an honest employee from making a mistake that could potentially ruin his or her life.

* You can use an audit as a good public-relations tool to show your organization's commitment to financial integrity.

In this economic climate, hiring a professional auditor may be out of the question.

If this is the case for your organization, think about forming an audit committee to perform the tasks listed above.

Volunteers for the audit committee should be selected from the board or general membership.

Preferably, these committee members would have a familiarity with the financial operations at the organization and a general understanding of how audits work.

Lacking this, they should have an interest and curiosity in becoming financially accountable.

Here are some ideas that work for the audit committee:

* Determine the adequacy of internal control. Make sure your organization has internal checks and balances in place. Test your financial procedures to see if they are being used. Review your board minutes and make sure they match your financial statements. Make sure that more than one person is collecting funds, dispersing funds, recording minutes, signing checks, and preparing financial reports; doing so will help tremendously in preventing your chances for fraud.

* Determine the accuracy of your financial reports and records. Review your income and expense statements, balance sheet, and statement of changes in financial position.

* Make sure all of your activities and procedures are being carried out with proper authorization. Review your corporate charter and bylaws, and make sure documented procedures are being followed. The board minutes will be the best asset to determine this.

* Determine the physical existence of assets. Verify account balances. Review deeds, tax assessments, and appraisals of items owned.

* Review your tax-exempt status and any activities that could endanger it.

* File your financial reports. Ensure that payroll taxes, sales taxes, licenses, and other taxes and reports are filed in a timely manner. Organizations with less than $25,000 in annual revenue don't have to file Form 990.

While nonprofit organizations are not bound to the Sarbanes-Oxley Act, they can still benefit from best practices inspired by it.

Many nonprofit boards are taking the initiative to become accountable and transparent by performing an audit, just as public companies do.

Andrew Payne is Blackbaud product line manager for The Financial Edge.


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