How Not-For-Profit Organizations Can Prepare for an Audit

Are you a nonprofit prepping your books for the next fiscal year? Here are five of the biggest mistakes I continually see not-for-profit organizations make – leading up to their audit.

1) They don’t track restricted grants, gifts and donations.

Many of the grants, gifts and donations not-for-profits receive are contingent on the demands of the donor. The restricted money is only received if the not-for-profit can prove the donation followed the restricted guidelines. Tracking this workflow now will better prepare your organization for any future audit.

2) They lack a digital archive system.

Every audit season, many not-for-profits waste time scouring their offices for months-old documents. June is a great time to ask your organization how these documents are stored. If your documents from last year are stored away in dusty filing cabinets, you are likely putting your not-for-profit organization at a disadvantage with any audit. Working a digital archive system into your budget now will save your team money and resources over the long-term.

3) They don’t track petty cash.

Every not-for-profit is continuously looking to minimize expenses. This means every penny must be accounted for. Yet, over the years, I’ve seen small and large not-for-profit organizations lack systems that track receipts and expenses for petty cash. Many not-for-profits waste hours on arbitrarily attempting to match expenses to calendar items, credit card statements or memory. This system, or lack thereof, paves the way for irregular expense accounting — a huge red flag to auditors. This fiscal season, your not-for-profit should work a simple expense application into the budget. Receipt Bank and Expensify are good platforms to sample.

4) The organization has incorrect reporting.

Pledges from donors are just that — a gift to be received at some time in the future. Future earnings are supposed to be accounted for as “Receivables and Income.” However, not-for-profits sometimes report pledges as cash and income as they are received. This incorrect reporting results in disparities in income and assets. Income is accounted for in the incorrect period, and assets of the year are incorrectly stated. Not-for-profits will run more accurate financial reports, and be better prepared for audit, by properly accounting for pledges.

5) There’s no tracking system for signed and initialed documents.

Auditors frequently request documents that verify an approval process via signatures and initials. Most not-for-profits tend to overlook the workflow process of these documents. This leads to a hard time finding any documents that show the accountability of a person. To aid the approval process, your finance team should invest in a cloud-based system with built-in oversight approval., Expensify and Concur are a few payable tech solutions that are worth the investment this fiscal year.

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