Nonprofits should be bracing for their next audit

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It’s a busy time for nonprofits as they begin preparing their books and budgets for the next fiscal year.

And while most finance directors focus their attention on cash flow and their organization’s financial future, now can also be a great time for them to re-evaluate their organization’s workflow and infrastructure. Taking a closer look at their organization’s workflow will prepare them for any future audit.

In my two decades of working with nonprofits, I’ve seen them all make the same mistakes, regardless of size. Most not-for-profits begin with volunteers and inexperienced professionals, but as the organization grows, they usually continue with those same hiring practices. As a result, they create legacy problems that continue year after year.

Here are some of the most common mistakes I see organizations make leading up to audits. But not only can they avoid these mistakes, they can also prevent them right now as they prepare for the next fiscal year.

1. They don’t track restricted grants, gifts and donations. Many nonprofit organizations receive restricted grants, restricted gifts or restricted donations that come with a contingency. They’ll get the money or gift, but their organization must be able to prove these grants or donations followed the restricted guidelines. Now is the time to create a workflow that keeps track of these future restricted gifts or grants by creating a system that proves the money was spent on the required item.

No nonprofit wants to face an audit without having this reporting. A worse situation is when they realize no one kept track of it. They should prioritize a system for restricted grants, restricted gifts and restricted donations as they’re preparing the next fiscal year’s budget.

2. They don’t have a digital archive system. Every government audit requires critical documents pulled from archive. The question right now is how easy will it be for an organization’s finance team to find those documents? Will the team need to go through several filing cabinets, looking for that folder from September 2016? Or will they push a simple search button on their computer?

Unfortunately, most nonprofits are decades behind technology when it comes to this type of archiving. They are still in the paper era, creating huge obstacles, time delays and frustrations for the finance person who needs to find that lost document needed for an audit. It’s a good time to evaluate their budget for an archival system that can better organize those documents needed for the audit.

3. They don’t track documents that require signatures. With many audits, the nonprofit organization will need to provide documents that verify an approval process. In this situation, the accountability of a person will come from a signature or initials. Auditors frequently want to see these types of documents, but most nonprofits overlook this workflow process at this time of year. As a result, these documents are hard to find. The finance team should be implementing processes to make sure everything is viewed to pass their next audit.

Tech solutions are a great tool for this approval process. There are many payable cloud-based interfaces that have built-in oversight approval. Bill.com, Expensify and Concur are just a few cloud-based systems that can keep track of these signatures and initialed documents for that future audit.

4. They don’t discuss cash flow issues until it’s too late. Finance directors understand how to forecast budgets and cash flow, but what happens when those projections are off-target after the fiscal year is underway? Typically, most nonprofit organizations don’t address cash flow problems with their financial advisor, bookkeeper or accountant until the problem has escalated. The deeper the hole, the harder it is to patch. By waiting months to alert their advisor or accountant, they are making the problem more difficult to fix. Ultimately, this will impact their audit.

Nonprofits and their advisors can stay on top of this by scheduling monthly calls between the finance team and their outside advisor, bookkeeper or accountant. If the call is on the calendar, everyone will be on board with whether financial expectations are being met, or falling short. Mark those dates down now for the rest of the fiscal year.

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