So, Your Nonprofit Is Being Audited. Don’t Panic!

It’s easy to view the word ‘audit’ as a four-letter word, especially in the nonprofit world. But it’s really not as scary as it seems. Let’s discuss what an audit is, why they happen, and the steps you need to take to navigate one smoothly.

First things first, let’s demystify this ugly thing called an “audit.” Simply put, it is merely a formal examination of an organization’s accounts to ensure that everything’s in order, all the financial i’s are dotted, and that the t’s are crossed. It’s like a health check for your organization’s financial records, a chance to make sure that everything’s above board (no pun intended… maybe just a little)

Now, why does an audit happen? Sometimes, it’s mandated by law, depending on the size of your non-profit. Other times, it’s required by a donor or grant-giver who wants to ensure their money is being used responsibly. It’s also a tool to provide transparency and trust to donors, stakeholders, and even your own organization. An audit is actually a good thing. No, really. It shows your commitment to maintaining financial integrity and builds trust with your stakeholders.

But what do you do when you’re facing an audit? Take a deep breath and proceed…

Step 1: Acknowledge the Audit

As soon as you receive notice of the audit, acknowledge it. This typically involves contacting the auditor, confirming receipt of their notice, and setting a time frame for the audit process. It’s essential to remain proactive and maintain open lines of communication. This is not the time to put your head in the sand and hope it goes away.

Step 2: Assemble Your Team

This is a team effort, so gather your key players. Your team should include your finance personnel, your executive director, and potentially a board member or two. 🔑 You may also want to consider engaging a nonprofit accountant or attorney for professional advice.

Step 3: Collect and Organize Your Documents

Your auditor will provide a list of documents they’ll need. This typically includes financial statements, bank statements, invoices, receipts, payroll records, grant letters, and more. Organize these documents neatly. I get it, it’s a lot. But the more efficiently you do this, the smoother the audit process will be.

Step 4: Review and Prepare

Before handing over the documents, review them. Ensure the financial statements are accurate, reconcile bank statements, and ensure the invoices match with your records. This preparation can prevent unexpected surprises during the audit process.

Step 5: Cooperate During the Audit

Once the auditor comes on board, be cooperative. They are not your enemy. Their job is to ensure your non-profit is fiscally responsible, which benefits your organization in the long run. Provide them with the necessary information, answer their questions honestly, and keep an open mind about their feedback.

Step 6: Understand the Findings

After the audit, you’ll receive an auditor’s report. It’s important to understand these findings. This isn’t just a matter of pass or fail. The report can provide valuable insights to improve your financial management. 🙋♂️ Ask questions.

Step 7: Implement Changes

This is where the rubber meets the road. Take the auditor’s findings seriously and implement the recommended changes. It might involve revising financial procedures, tightening up internal controls, or increasing documentation. Whatever it is, see it as an opportunity to strengthen your organization.

Step 8: Communicate

Finally, communicate the audit results to your stakeholders. Transparency is critical in a non-profit, so make sure your donors, staff, and board are aware of the audit findings and the steps you’re taking to address them.

I make seem it easy, but honestly, an audit doesn’t have to be a terrifying ordeal. It can actually be a helpful tool to ensure your non-profit is operating with financial responsibility and integrity. With a little bit of preparation and a positive mindset, you can navigate an audit with ease and come out stronger on the other side.