Your nonprofit may not be required to undergo regular audits. But an audit can reassure donors and other stakeholders that you take seriously your responsibility. An audit can also help you identify risks before they become intractable problems. Here’s how to initiate and prepare for an audit.
Find and meet with an auditor
Start by drafting a request for proposal (RFP) for prospective auditors. The RFP should describe your organization, its programs, major funding sources, and the type of service you need. Once you select an auditor, the firm will provide an engagement letter outlining the scope of services to be performed and assign responsibility for various tasks to your staff or the auditors. The pre-audit meeting with your auditors comes next. Finance staff and management should attend, as well as representatives from your board of directors or audit committee. Those involved will draw up a timeline for the work, and the auditors can answer any questions about the information they’ll need. During this meeting, inform the auditors of any changes in your nonprofit’s activities since you first met. Also communicate new or eliminated programs, new grant reporting requirements, and changes to internal controls and staff.Do your part
Collecting and organizing the documentation auditors need before they arrive saves them time and saves you money. Usually, auditors will provide a list of documents — such as financial statements, accounting records, physical inventories, and investment-related documents — and the date when each item is needed. Auditors also generally need organizational records such as:- Articles of incorporation,
- Financial policies,
- Exemption letters,
- Board meeting minutes,
- Grant agreements,
- Pledges and other funding documents,
- Contracts, and
- Insurance policies.
