Is Your Audit Over? Here’s What to Do Next
Financial audits conducted by outside experts are among the most effective tools for uncovering risks in nonprofits. They help assure donors and other stakeholders about your stability, but be sure you properly respond to the results since failing to act on issues identified in an audit could threaten your organization’s long-term viability.
Reviewing the draft report
Once outside auditors complete their work, they typically present a draft report to an organization’s audit committee, executive director and senior financial staffers. Those individuals should take the time to review the draft before it’s presented to the board of directors.
Your organization’s audit committee and management should meet with the auditors prior to the board presentation. Often auditors will provide a management letter (also called “communication with those charged with governance”), highlighting operational areas and controls that need improvement. Your nonprofit’s team can reply to these comments to include in the final letter, to demonstrate ways they plan to improve the organization’s operations and controls. The audit committee also can use the meeting to ensure the audit is properly comprehensive.
Executive director’s function
The audit committee should obtain your executive director’s impression of the auditors and audit process. Were the auditors efficient, or did they perform or require redundant work? Did they demonstrate the requisite expertise, skills and understanding? Were they disruptive to operations? Consider this input when deciding whether to retain the same firm for the next audit.
The committee also might want to seek feedback from employees who worked closely with the auditors. In addition to feedback on the auditors, they may have suggestions on how to streamline the process for the next audit.
Final audit report
The final audit report will state whether your organization’s financial statements present its financial position in accordance with U.S. accounting principles. The statements must be presented without any inaccuracies or “material” — meaning significant — misrepresentation.
In a separate letter, the auditors will identify specific concerns about material internal control issues. Adequate internal controls are critical for preventing, catching and fixing misstatements that could compromise the integrity of financial statements. The auditors’ other suggestions, presented in the management letter, should include your organization’s responses.
If the auditors find your internal controls weak, promptly correct them. For example, you could implement new controls or new accounting practices.
If you have questions about audits and post-audit procedures for your organization, contact us today.
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