Preparing for a successful nonprofit audit requires partnership between Program and Finance to manage risk and program results. In previous posts, we cover the steps to take to ensure the annual audit is a byproduct of leadership and oversight of our programs. For a refresh on the steps and internal controls that need to be established, you can read my previous blogs here:
- How Finance Can Partner with Program for Audit Success
- Preparing for the Annual Audit—Identifying Risks and Establishing Strong Internal Controls
The last step of the nonprofit audit is to present our audited financial statements and shiny, clean opinion letter to the board.
These presentations are often mind numbingly boring. We have spent countless hours organizing footnotes, grouping the line items on the financial statements to effectively tell our story. Our auditors march the board through the report, ultimately saying that we were cooperative and the opinion is clean.
All in all, it is anticlimactic for everyone. Do we need to leave our auditors the opportunity to focus that 20 minutes on strategic initiatives? In my experience, the answer is often no. During the year, we have our own management reports that focus on programmatic and financial outcomes. The presentation for the GAAP financial statement gets pranced out once a year like a birthday cake.
The auditors have a responsibility to ensure that the board understands the GAAP financial statements and the implications of the opinion letter. If our board only sees that format once a year, the time needs to be spent on the basics of the statement itself.
Want to learn more about preparing for a successful audit? Watch our on-demand webinar: Preparing for a Successful Audit: A Conversation between Auditor and Auditee.
Sharing financial statements and program results
What if we used our accounting software to punch out our GAAP financial statement and the key footnotes at least quarterly? This way we are providing our board, executive leadership, and lending institutions a true GAAP financial statement. Any accounting software worth its salt can provide the management reports and GAAP financial statement directly from the software—not through a labyrinth of Excel spreadsheets.
3 reasons sharing GAAP financial statements quarterly is effective:
- This approach provides an opportunity for us to make sure that we are “tweaking” our GAAP financial statement presentation to reflect our current organization.
- This approach avoids the massive rewrite of various statements within our GAAP reporting while finalizing the audit.
- It also provides our leadership the ability to speak with continuity during the year in a consistent manner. Our Finance Committee members likely know our bankers and funders in the community. It serves us well to arm our advocates with GAAP results and our management reports. We are sharpening their pencil by giving them information they need to speak on our behalf.
Our mind-numbing audit presentation now can become a dialogue! Our board members have had time to see the evolution of our GAAP financial results through the year. This provides the forum for the Board to talk about the impact of these financial results and trends. The auditors also have an opportunity to speak to our program results and internal controls. This is a win for everyone. The Board can feel informed and comfortable representing us to their constituents and program leadership can see how the audit reinforces the good work that they do. At the end of the day we are all here for the mission that program delivers!
To learn more about how to set your organization up for remote audit success from Paul Preziotti, CPA, Partner, Johnson Lambert, check out our webinar, Be Audit You Can Be: Preparing and Running a Successful Remote Audit.