Earlier this month, we ran an Abila-crafted email marketing campaign, “Five Audit Nightmare You Want to Avoid” that got some attention. Many nonprofits are now in the middle of year-end audits, or will be scheduling audits later in the year. Although intended to stimulate thinking about accounting software, the bulk of the campaign’s information is right on target. I recommend it to BOD members, executive directors and financial managers.
First, let me make an observation and relate an antidote. Too many nonprofit organizations misunderstand the purpose of an audit. It is an independent review of the financial statements prepared by management to provide an opinion of their fairness. The audit is not a substitute for sloppy accounting and lack of internal controls. What we hear too often from nonprofit managers when asked about internal controls, such the need for a review of internal financial statements by a qualified person other than the one preparing them, is that we get that from our auditor. Some of you may have heard this one: When asked by the auditor about his organization’s internal controls the Executive Director replied “You’re it!” I admit this is at the extreme-end of the spectrum, but there are truly a lot of misunderstanding and poor practices in the middle. Preparation for the audit should not be an extraordinary project that consumes many extra hours of the accounting staff’s time. Organizations that get their act together as discussed in the material and from our direct experience put these problems in their rear-view-mirror.
Going forward, the following are the five audit nightmares. Click here to download a series of short articles that describe each deficiency and the importance of having good accounting software, internal controls and processes, not to mention competent personnel.
- Disjointed reporting and data
- Inconsistent reporting and data
- Inconsistent allocation methodologies and corrected journal entries
- Internal control deficiencies
- Improper internal processes