Biggest Mistakes Nonprofits Make With Audits

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June is the month when most nonprofits are preparing for the next fiscal year. It can also be a timely opportunity to re-examine your nonprofit’s workflow and infrastructure. The time spent now will prepare your organization for any future audit.

In my two decades of working with nonprofits – large and small, I’ve seen most organizations make the same mistakes year after year. Essentially, they create legacy problems that take years to correct.

Most nonprofits start with a small staff of volunteers and inexperienced professionals as they account for every dollar spent. But as the organization grows over time, most of these nonprofits rarely change their hiring habits. They continue hiring the same types of workers.

Here are some of the most glaring mistakes I see organizations make this time of year. By focusing more attention on your workflow and infrastructure now, it will help your finance team be better prepared for any future audit.

Biggest Mistakes Nonprofits Make before Audits

1) They don’t have a system to track restricted grants, gifts, and donations. It is common for nonprofit organizations to receive grants, gifts or donations that are contingency-restricted – you only receive the money if your organization can prove that the grant followed the restricted guidelines. This fiscal season is when your organization should create a system that proves the money was spent on the required items.

2) They haven’t gone digital.

The business world is increasingly digitalized for a reason. When a government audit asks you to pull the required critical documents out of your archive, do you have to send a search team to the back closet for that September 2016 folder? Or is it a one-man operation via your computer’s search tab? In the nonprofit sector, filing cabinets are still the norm. These nonprofit organizations are stuck in the paper era, costing unnecessary time delays and frustration for overworked finance teams. By working an archival system into this year’s budget, your finance team will be better prepared to find those audited documents.

3) They don’t have a system to track signature approvals.

Most nonprofits overlook the workflow needed to verify an approval process. These documents, which assign accountability via a signature or initials, are frequently requested by auditors, but are often hard to find. Most nonprofits don’t have a system to track the documents. A good tech solution to aid this approval process is a payable cloud-based system with built-in oversight approval., Expensify and Concur are a few solutions to sample.

4) They don’t consistently discuss cash flow performance.

Most nonprofit organizations find themselves digging a deeper financial hole; they don’t address off-target projections until they’re in too deep and the problem has escalated. These missed forecasts can hurt any audit if they aren’t resolved.  Now is the time when nonprofits should put monthly calls on the calendar over the next year to discuss performance with their financial advisors, bookkeepers, etc.

About the Author

Mark Gilbert is the Founder and CEO of MBS Accounting Technology & Advisory, which provides Bookkeeping, Accounting Technology Integration, and C-Level Financial Management Solutions to SMBs and Not-For-Profits. The firm is based in New York City and Portland, OR and hosts an annual event, MBSCalcutech

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