Many nonprofits are required by federal or state laws to undergo an independent annual audit. Such an inspection can appear as a tiresome chore or even the first step in a star-chamber investigation — but this view misses the opportunity that a thorough and objective audit affords your nonprofit.
It can demonstrate for all your integrity and compliance with accounting standards. And it can turn up inefficiencies or nonstandard practices you need to address.
While an internal audit can serve as an early-warning system, it may not deliver objective results. Even if your designated internal auditors have audit training, they still have a subjective stake in the outcome.
Independent auditors are better able to compare your finances to accepted standards. They’ll work with your staff and gauge your internal controls with experienced eyes. Beyond your basic financial statements, they’ll make a comprehensive review of activities in accounts payable, accounts receivable, fundraising, leases, investing, payroll and other areas.
An outside auditor will sum up its findings in an opinion on your financial statements. It will also deliver a management letter reporting weaknesses and deficiencies in internal controls and suggestions for general improvements.
This letter is usually the starting point for a discussion between the outside auditors and your own audit committee to improve the organization — and that’s where you can realize great value.
A frank conversation with the auditors about their findings, in which you raise questions and solicit suggestions, will give you a sound understanding of your financial practices and how they stack up.
If the auditor’s opinion is unmodified, you have a new and powerful tool for your fundraising activities. And if it’s a qualified opinion, you’ll know what to do to turn things around next year.
For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.