What Every Nonprofit Bookkeeper Should Know About Audits
As a nonprofit bookkeeper, the word “audit” can conjure a mix of anxiety and uncertainty. But an audit doesn’t have to be a dreaded event—it can be an opportunity to showcase the solid financial practices that support your organization’s mission. Whether you're new to bookkeeping or a seasoned pro, here are some key things every nonprofit bookkeeper should know about audits.
1. What Is an Audit, Really?
An audit is an independent examination of your organization's financial records. The goal is to provide assurance that your financial statements are accurate and comply with accounting standards. For nonprofits, audits are often required by funders, regulatory agencies, or your board of directors.
2. Understand the Types of Audits
Not all audits are created equal! Here are three common types:
Financial Statement Audits: These focus on verifying the accuracy of your financial statements.
Compliance Audits: These ensure your organization is following donor restrictions and grant requirements.
Internal Audits: These are conducted internally to assess internal controls and financial processes.
3. Preparing for an Audit: Best Practices
Preparation is the key to a smooth audit process. Here’s how you can help:
Organize Documentation: Ensure that all financial records are up-to-date and easily accessible. This includes bank statements, payroll records, grant agreements, and invoices.
Reconcile Accounts: Make sure all accounts—bank, payroll, accounts payable, and receivable—are reconciled before the auditor arrives.
Review Restricted Funds: Double-check your tracking of restricted funds to ensure donor intentions are being honored.
4. The Role of Internal Controls
Auditors will evaluate your organization’s internal controls. Your job is to ensure processes are in place to prevent fraud and errors. Examples include:
Separating duties for handling cash and recording transactions.
Conducting monthly bank reconciliations.
Requiring two signatures on checks over a certain threshold.
5. Communication Is Key
During an audit, you’ll likely work closely with the auditors. Be ready to:
Provide requested documents promptly.
Answer questions about unusual transactions or discrepancies.
Explain your organization’s financial processes clearly.
6. Audits Are a Learning Opportunity
Think of an audit as a financial health checkup. Use the process to identify areas for improvement, strengthen internal controls, and build trust with donors. An audit report that highlights your organization’s financial integrity is a valuable tool for securing future funding.
Final Thoughts
Audits are an essential part of nonprofit financial management. By understanding what auditors are looking for and preparing accordingly, you can take the stress out of the process and turn it into an opportunity for growth. As a bookkeeper, you play a vital role in making audits run smoothly—and in ensuring your nonprofit’s financial practices are mission-aligned and above reproach.
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