Are You Audit Ready?

Monday February 7, 2022 comments

Any accounting business and tax advice contained in this here podcast is not intended as a thorough in depth analysis of specific issues, nor is it a substitute for forming information, nor is it sufficient to avoid tax related penalties. If you have specific questions that you need advice for, be sure to schedule a strategy session and not solely rely on information in this podcast.

Welcome to another episode of The Nonprofit ACE Podcast. I'm your host Chyla Graham. I run CNRG Accounting Advisory. We're a virtual accounting firm based in Denver, Colorado that focuses on helping nonprofit leaders get comfortable talking about money. One of the tricky things when you're talking about money is the idea of an audit. And I have an audit background.

It is very common that I see organizations who say we need to have an audit. And really, do you? Do you? I don't necessarily think so. So what I would love to talk to you about today is what is an audit, what does audit preparation look like and what you should do. So an audit is an in depth look at your organization's finances. The auditors are coming in to prove that what you say is accurate. So they're not coming in solely to ask you questions to say, "Oh, how did it go?"

That's nice, but they are there to also verify. So they're going to say, "Thanks for saying that that happened. Does that match up with what we saw in the industry? If we were to look at your bank statements, is that true? If we were to talk to your funders, is that true? If we were to talk to your vendors, is that true?" They are there to trust and verify, is what we used to like to say. So that is what an audit is.

It is an in depth look. It's not just taking your word for it. It is saying, "Okay, thank you. Who can we talk to to confirm this information?" The reason that some organizations want to have an audit is because of funder requirements. So some funders say, "Hey, you need to have." Or they ask for an audit report. They don't necessarily say you have to have an audit, but they say, "Can we have a copy of your most recent audited statements?"

Ask the funder what they're looking for because if the funder is just saying, "Oh, I just want to know that someone looked at the reports," you might be able to get away with a review, which is more of that, let's ask you what happened and trust or a compilation where they're like, "Give me your information and I'll put this on my letterhead."

So when you want to think about if your organization needs an audit, which can be really expensive. I actually was talking to one audit firm and they were very transparent with me. They were like, "Hi. So we start at 25,000." And I was, "Got it." And I've also seen people who charge 5000 for audits. And let me tell you, there is going to be a difference in what you need. Depending on the size of your organization, that is not to say that a $5000 audit won't get you what you need.

But if you are a multimillion dollar organization and they tell you that it's going to be $5000, do not go with them, they are lying. And not even lying that that's what they're going to charge, but lying about if you're going to actually get an audit. Because for $5000, if you're a multimillion dollar organization, that is not enough for the man power it's going to take to do that.

So as you prepare for an audit, or if you are going to have an audit, things for you to consider. Number one, why do we need it? Are we needing it because of a funder? And if so, would that funder be able to subsidize it? If not, are we seeing multiple funders ask for audits? And so it's worth it for us to do it because we know we're going to use it for multiple purposes. Number two, when would we be ready for an audit?

When I used to do audits, the worst thing was when people were not ready for us. And so we would have it on our calendar. We're like, "Okay, we're doing this audit the first week of April." And we show up and they're like or if we didn't show up so we would have a prep week. And if we noticed, hi, none of the things I asked for you have, we would know well, this is going to be a waste of time.

And so really thinking for yourself of, hi, when are we going to have it, and is that reasonable? Not just from, are we going to be able to be prepared, but are the people that need to be there going to be there? If you have a major officer, your development person or your ED is out on vacation, not a, oh my gosh, something came up, life.

But a, well, I've been planning this for three months. Why did you think they would not be involved in this process? So really think about those pieces of, when are you going to have the audit and what is going to be a reasonable date. Two more things. The next thing I want you to think about is your budget.

Really thinking about that outlay, is that something that you have planned for and can take. Do not go with the cheapest option, just because it's the cheapest option. Make sure that it's going to be the right fit for your organization, that they have experience with nonprofits, that they can give you any additional value that your organization is going to need. They can address the concerns, access things up front. You are vetting them as much as they're going to be vetting you.

Because trust me when the auditor, if you tell the auditor, "Hey, I want to do an audit. What's going to be the quote?" Most audit firms are going to say, "Give me some additional information on your organization before I give you that quote." Yes, yes they will. And so really think about your budget. If they're not going to ask to you for any additional information, not that it won't go well, but that might be an indicator of how involved or how much they want to know about your organization to support you in the way you need support, as opposed to them just saying, "How about you just give me some money."

All right. And now the last thing is to think about what the prep list looks like. So if you head over to our website, we'll put a link in the show notes. We do have a sample prep list. It is generic, but it's going to have all the things that most auditors are going to ask you for. So go ahead and grab that. Look at the list and think to yourself, even if you are not in the position where you're having an audit this year, how prepared are you to pull any of those documents?

And what do you need to do to get into that position where you're, yep, we have all this information. We know where it is. All right. So for me to you, those are my tips as a former auditor, as someone who wants more organizations to have good audits. I want you to have good audit results.

Really think about the work that goes into preparing for the audit. Check out the link for the audit prep list. Give me feedback. If you're like, "Oh, there's a thing that our auditors ask all the time that I think more organizations should look into, I would love to know what that is." All right. Bye. Thanks for listening to another episode of the nonprofit ACE podcast.

Be sure to follow The Nonprofit ACE Podcast on your favorite podcast player so you never miss an episode. If you want to continue the conversation, follow me on Instagram. I'm @CNRGadvisory. I want to hear from you so be sure to send me a DM if you have any questions that you want to get answered. And leave me a review on your favorite podcast player, be that Castbox, Google Play, Apple Podcast or Spotify. Thanks for listening.

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Audit Preparation List