Are you ready for your audit? What kind of question is that, you may think. Why should you be ready in December? Most audits are annual and happen in spring of the following year. There is plenty of time to get ready for your audit next year. Why the rush?
What is an audit for?
An audit is conducted by an auditor and provides a certain level of assurance on the correctness of the data presented. In the audit the auditor not only looks at the numbers and the underlying documentation but also at the internal checks and balances and internal adherence to agreed procedures.
What does an audit look at?
An annual audit, leading to an audit statement that accompanies your annual report, will focus on checking everything you present in that report. Not only the numbers in the financial statement but also statements you make in notes and numbers and other information you present in the narrative part.
How is that done?
First of all, your auditor will of course look at the financial statement. Using that as a starting point, they will zoom in on different blocks of that statement for more details. You are expected to be able to provide them with a breakdown of the data that you used to calculate the numbers in a block. And to present them with the documentation underlying these data, such as invoices and pay slips for instance.
Next, your auditor may ask to see proof of the arrangements (like in a contract), proof of existence of the things you paid for and proof of payment. Throughout these checks the auditor will verify that the expense was authorized by someone with the mandate to do so and paid by someone who has the mandate for making payments. To name a few of the most common checks.
Auditors are not working in a void. More and more they are also checking compliance issues that you might think are not directly finance related. For instance, they check sometimes part of your personnel files. They may check compliance with the GDPR or similar data security legislation. They may look into your IT infrastructure to assess security issues there.
So, what does this mean for me?
If you want the audit to be smooth and as fast as possible, it is best to prepare everything the auditors will want to see. Auditors usually hand out a so-called Prepared By Client list (PBC list), listing different documents they will want to see. Often you can upload these documents in their secure online portal before the start of the audit. During the audit itself, the auditors will follow up with questions on these documents as well as with samples of items they want to see more in detail.
Apart from the obvious tip: make sure to submit all required documents before the start of the audit, my main tips are:
- Make sure you present all documents in a way that is understandable for someone other than yourself. Someone who has not just spent hours, days, or weeks with those data and documents. Explain your calculations, highlight important parts of documents, number documents clearly and consistently, etc. Be friendly to the reader.
- Test your own administration. Can you easily locate documents? Are all paper trails complete? That is, did everyone sign the papers they needed to sign? Do you have all contracts underlying invoices? All procurement documentation underlying contracts? Etc. etc.
Make a planning for yourself to be ready in time. And make a plan for next year, in which you build in routines for regular checks on these issues. That will help you save time in preparation of the next annual audit!
Want to know more and ask questions?
If you want to discuss this more – jump into the Facebook group and get input from a wide range of peers and from myself!
If you want to learn how to make your own annual report – including financial statement – you can join my course Annual Reporting for nonprofits! You can find more information here. You can also register there. Registration opens on Monday 30 November 2020 and closes on 7 December 2020. Doors to the course open on 13 December 2020.
Here is how you can join my free Facebook group
You can join my free Facebook group how to become a professional and resilient nonprofit with Suzanne Bakker here. In this group we will create a safe space for open exchange and discussion on potentially sensitive topics like boards, nonprofit management, fundraising, etc.