How to Pass an Audit
Most of the nonprofits I have worked with over the last three, or four years failed their audit. Almost every single one was missing the same few things.
If you want to pass your next audit, here is exactly what auditors look for.
Keep Your Paper Trail
Auditors want proof. They will ask for things like:
Receipts for every purchase
Bills and invoices
Backup for every journal entry you make
Timestamps showing when work was done or approved
Board meeting minutes
If you cannot show proof, the auditor cannot check your work. That is when problems start. Keep all of this in one place so you can find it fast when it is time for your audit.
Write Down How Your Business Runs
You also need a document that explains how your organization handles money and makes decisions. This should cover things like who approves expenses, who signs checks, and who is allowed to do what. Auditors want to see this in writing, not just hear you explain it.
The Biggest Problem: Weak Internal Controls
Out of everything I just listed, weak internal controls cause the most audit failures. This happens when one person does too much.
Here is an example of what goes wrong. One person counts the money. That same person takes the money to the bank. That same person also enters the money into the accounting system. When one person controls every step, there is no way to check their work. This is a big red flag for auditors, even if nothing bad ever happened.
The fix is simple. Split these jobs up between different people. This is called segregation of duties. It does not have to be complicated. Even a small team can do this. For example, your office manager could count the money while someone else makes the deposit and a third person enters it into the books. As long as more than one person is involved, you are in much better shape.
Get Ready Before Audit Time
If you keep good records and split up your money duties, you are already ahead of most nonprofits. These two things are the reason most audits fail. Fix them, and you give your organization a real shot at passing with no surprises.
Get Your Free Audit Check Today
Do not wait until your auditor finds the gaps. Reach out to me today and I will do a free quick check of your books. You will walk away knowing exactly what to fix before your real audit happens.
Call or text me at 317-983-3980, or email me at markus@revampfinances.com.
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