Most nonprofits don’t look forward to annual audits, but regular maintenance and preparation specific can make the process less disruptive to your operations. Just as preparation is vital for a broker dealer audit or any business or organization, tax & audit experts recommend the following steps.
1. Reconcile routinely
Don’t wait until audit time for account reconciliation (e.g. cash, receivables, payables and revenues). General ledger account balances should be reconciled to support schedules (bank reconciliation, receivables and payable aging) at least quarterly. Database information provided and maintained by nonaccounting departments should also be reconciled frequently, such as contributions, events revenue and sponsorships.
2. Prepare supporting documentation
Collect all supporting documentation before your California nonprofit audit and immediately alert auditors of missing items. You might need to request duplicate invoices from vendors or ask donors for copies of letters describing contributions.
3. Assemble PBC list items
Auditors typically compile a Provided by Client (PBC) list of materials they expect clients to produce including a timeline. Missing the timeline could push back the audit and miss your deadline for completion. To ensure accuracy, perform an additional self-review before sending any information.
4. Explain variances
Your auditors will inquire into significant variances between the current and prior years’ revenues and expenses. Be ready to clearly explain them.
5. Review past audits
Prior audits provide useful guidance. Check them and confirm you didn’t make the same errors this year, and that you posted all of the last audit entries. Otherwise, your financial statements could be distorted.
California nonprofit audits are a long-term relationship
Don’t think of your California nonprofit audits as a once-a-year obligation. Keep in touch with auditors throughout the year. Don’t hesitate to ask your auditors for help recording funds you’re not sure how to document.