In the next few months, many Chicago arts nonprofits will arrive at the end of their fiscal year. This means that someone in the organization needs to be thinking about the next audit. That much-dreaded process doesn’t have to be the stress inducing project it is often made out to be. While you may not be able to eliminate all the stress from the annual audit, with the right preparations you can certainly make the process smoother and maybe even save some time and money.
Here’s an overview of some of the preparation that can pave the way to a smoother audit.
CHOOSING AN AUDITOR
If you don’t already have a CPA firm selected to perform your audit, you should prepare a Request for Proposal (RFP) to send out to CPA firms. Tap your board to help with this process. Many organizations have an Audit Committee to help steer the audit process. Sometimes the Finance Committee will serve this role.
Don’t forget that the preparation of the federal and state 990s is a separate function from your audit. You will need to add it to your RFP as an additional item. Send the RFP out to at least 3 to 5 firms. Ask your network contacts for recommendations. Look for firms who have performed audits for organizations of similar size and type.
Here are five tips for selecting an audit firm courtesy of Larry Little, CPA and President of
FIVE Tips to Help You Select Your Auditor
You have lowered your auditor selection down to several CPA firms, all have responded to the RFP you have sent out and you may have eliminated several firms for various reasons, here are five things to help you determine which auditor you should choose:
1) Which CPA firm responded quickly and completely to your initial emails or phone calls? This is a good indication of how they will respond to your questions and concerns during and (most importantly) after the audit. You want a CPA firm that will be there after the audit is complete to answer questions that come up throughout the year.
2) Which CPA firm did not fulfill all of the RFP requirements? You want to choose a CPA firm that either gives you what you want or tells you why they did not.
3) After interviewing each firm, what exactly is expected of you during the audit? Are there things you can prepare for the auditor to help keep the audit fees at a minimum? How many onsite visits will there be? Will the CPA firm give you a list of things needed immediately so that you can start to prepare for the engagement?
4) Have any of the CPA firms you are considering missed agreed upon deadlines? How long did it take the CPA firm to deliver the last non-profit audit to the client? You should expect your audit to be turned around and delivered within 2 weeks of submitting the last item they requested to you. (But be patient, an audit is an ongoing process and the auditor will continually request things from you for a while.) Will they give you DRAFT Statements for you and the Board to review before finalizing the audit?
5) What kind of “chemistry” did you and the CPA firm representative have? Does the CPA firm give cash contributions to non-profit organizations (do they “give back” to the community?) Is this a firm that you can work with for a few years?
Once you have answered the above questions, hopefully you will narrow your decision down to one CPA firm. Remember, the audit is something that can be very useful to you and the organization, so don’t be afraid to ask your auditor lots of questions while the process is happening. Audits do not have to be “terrible” experiences – they can help you identify internal control risks, help you with basic bookkeeping procedures and help you understand how to read your financial information.
Now that you have selected an auditor, here are a few preparations you can do to help ensure a smooth audit. Ask your auditor for additional advice on preparing. It’s in their best interests as well for the client to be audit ready.
Make sure your books are in order!
Messy bookkeeping can be one of the biggest contributors to a stressful audit. It’s really a kind of “pay now or really pay later” scenario. The use of a reliable, professional bookkeeper and accountant can make a world of difference here. Don’t expect your auditor to clean up your books. It’s very time consuming and can end up costing much more than the audit should.
Have an organized filing system.
Organized Accounts Payable, Banking & Deposit, and Grant files are critical to a smooth audit. Arrange the contents of each folder in reverse chronological order. That way the most recent transactions are on top.
You may want to keep a separate, temporary file of all transactions that took place in the month after the end of your fiscal year. These are the transactions that are most likely to be questioned as to which fiscal year they belong in.
Set up an expandable file or box for audit materials.
Ask your auditor for the list that Little refers to in his item number “3”. Place copies of requested items into labeled folders and then into your expandable file or box. When your auditor arrives for their on-site work, you can give them the whole file or box to work from.
Here’s an example of the kinds of items you may find on the list:
List of Board Members: name, position on Board, addresses & e-mail addresses
Minutes of Board Meetings
Contracts w/ consultants, attorneys, etc
Lease Agreements (office space, copier, etc)
Mortgage & other debt agreements
Name & address of individual and company donations over $5,000
Copy of Budget
Detailed list of Fixed Assets
Payroll W-2, all payroll tax returns & quarterly payroll reports
Award Letters for all grants of $5,000 or more
Some of these items are sensitive documents. If you can’t lock up the whole file or box, you may want to keep the sensitive documents locked up until your auditor arrives on site.
Hopefully, you are now on your way to a smoother audit. A lot of the trepidation of going through the annual audit can be reduced by good preparation.
Best of luck!
If you have questions or need additional information, you may contact Dan Jacobson, A&BC Director of Operations, via email or call 312-372-1876, extension 233.