5 Tips for Lessening Stress with Nonprofit Audit* Preparation

Does the thought of your not-for-profit’s annual external audit* make you anxious? You’re not alone. With the right preparation, the audit process can be far less stressful—for both your team and your auditors. These five practical tips will help both the nonprofit staff and the external auditors approach audit season with greater confidence, clarity, and readiness.

1. Be prepared with pre-audit items

Most auditors will provide a list of items needed during the audit with deadlines for each item.  If such a list isn’t provided automatically, then ask the auditor for a list.

Review the list and ask any questions prior to the beginning of fieldwork. Also, be sure to address any difficult items to ensure they’ll be ready by the agreed-upon deadlines.

Because unpredictability is a required element in the audit, some information will need to be produced on the spot--such as specific expense reports, journal entry support, or grantor or program reports.

2. Have realistic expectations

Audit expectations and responsibilities should be clearly outlined in the engagement letter with your audit firm.

Current professional standards establish a clear boundary between accounting and auditing services, requiring auditors to remain independent from an organization’s accounting functions. Tasks such as preparing year-end journal entries, reconciling bank accounts, or analyzing prepaid expenses and accrued liabilities—if not handled internally—may impair auditor independence and should be considered for outsourcing to a different firm.

If your organization has the expertise and ownership of the accounting process, your auditors may assist with certain analyses or adjustment-related information outside the scope of the audit. These services should be discussed and agreed upon in advance to ensure compliance with independence requirements.

While auditors can assist with calculations and provide technical insight, they cannot be involved in your internal controls or participate in management decision-making.

3. Minimize risks year-round

Self-assess inherent internal control weaknesses and determine the necessary internal controls to look for improvement “opportunities.” Periodically determine whether the organization’s policies and procedures are being followed. Additionally, ensure that documentary evidence of internal controls is retained for the audit, such as, for example, evidence of review and approval over payroll journals. If your operations have changed or evolved, discuss these developments with the auditor during the year and update policies and procedures accordingly.  If evidence of review has become electronic, ensure there is still an audit trail to show to the auditor to prove that the control is still in place. Waiting until fieldwork begins may delay the audit process.

4. Be prepared to manage any internal control deficiencies

The auditor applies risk standards during the audit, including understanding your internal controls in significant areas. Areas the auditor may examine include:

• More than one person handling cash receipts and reviewing and approving cash disbursements and payroll,
• A second person authorizing contracts and their payment, and
• Adequate oversight of the organization’s checks and balances system.

After reviewing the assembled risk and internal control information, the auditor could determine a “significant deficiency” or “material weakness.”

Prepare a written response including whether action has been taken or will be taken on any matter identified in the auditor’s management letter. This action is important to an audit committee and board as they oversee the audit and overall system of checks and balances.

5. Keep the lines of communication open

Communicating with the auditor year-round is critical and facilitates the timely completion of the annual audit. Be proactive in understanding new guidance or accounting pronouncements and any potential impact on future audits or financial reporting.

Year-Round Readiness Starts Here

Incorporating these five tips throughout the year can go a long way toward reducing audit stress and improving outcomes. Contact CRI’s not-for-profit advisors today to learn how we can help your organization strengthen financial reporting, enhance internal controls, and reduce risk. Whether you're preparing for your next audit or looking to improve day-to-day financial management, we’re ready to support you every step of the way. Let’s start the conversation—we’ll save you a seat.