The dreaded day has come and gone. As you exhale a sigh of relief that an audit of your nonprofit has ended, you can move forward until the next audit stares you down in 12 months. You even might feel like celebrating with the employees and volunteers that make your organization hum like a well-oiled machine.
Not so fast.
The completion of a nonprofit audit is just the end of the stressful process. Now you have to follow a few steps to ensure the results of the audit are put to good use.
The goal of an audit of a nonprofit is to ensure the organization complies with every guideline associated with achieving the 501c(3) status. An audit is like an investigation in that a team of auditors determines whether your nonprofit has followed its mission statement, as well as track how every dollar is spent. Audit laws, which vary among the states, determine how often a nonprofit should receive an audit. A majority of states (26) require nonprofit audits when an organization reaches $1 million in revenue. Other states have established a revenue value above or below the $1 million threshold.
Now that the team of auditors has left your office, let’s see what your team should do after the audit is over.
Review the Draft
After a team of auditors finishes an audit, the first step is for the auditors to present a report to your nonprofit’s audit committee, executive director, and senior financial staff members. The group of individuals responsible for reviewing the drafted report eventually presents the report to the board of directors.
Managers and members of the audit committee typically meet with the team of auditors before the presentation in front of the board of directors to verify the operational controls that require improvement.
Address Accounting Issues
One of the most important conclusions of a nonprofit audit is to determine whether an organization has followed the Generally Accepted Accounting Principles. Your nonprofit’s financial statements must not include intentional and unintentional misrepresentations. After reviewing the report submitted by the team of auditors, the audit committee recommends the steps necessary to tighten internal accounting controls.
One important role of the audit committee involves asking the executive director for feedback concerning the audit process. Did the auditors display the right types of skills and expertise when conducting the audit of your nonprofit organization? Did they disrupt your nonprofit’s operations, such as requiring your organization to cancel a fundraiser to address accounting issues? The audit committee also should seek feedback from the workers that worked closely with the team of auditors.
Present the Audit Results to the Board of Directors
Every board member should receive a copy of the audit results, as well as the management letter that discusses the audit, as part of the materials issued for the first board meeting that takes place after your nonprofit accepted the audit report. The board of directors does not approve or disapprove the results of the audit. They simply accept the report as part of a meeting’s agenda. The audit report is not subject to debate, which means the board of directors cannot request any changes to the results of an audit.