Audit-Ready Financials

Article Dean Dorton

This blog is the March Edition of our CFO Minute: A Sage Intacct ERP Series.

INVASION OF THE AUDIT SNATCHERS– Let’s face it. The idea of an audit can be easier in theory than in practice. For nonprofit organizations, the greater the competition for funding, the greater the increase in audit scrutiny- and your organization should be prepared.

The overall goal is to earn a “clean” unqualified opinion from your auditor. With this being said, the key to audit readiness is keeping up with well-documented transactions and balances. 

Why Do Audits Matter to Nonprofits? (or at least they should!)

Public Record & Transparency: The push for complete transparency in the nonprofit space is stronger than ever- potential donors, grantors, and government authorities can look to public resources such as GuideStar to review a nonprofit’s audited financials. Keep in mind that the data that donors and stakeholders see can impact their charitable decisions in the future.audits for nonprofits

Grant Requirements: What nonprofit DOESN’T want to be eligible for grants?! A clean, audit-ready financial statement can make or break the decisions of grantors. Many grants require submission of audited financial statements as part of the grant application process- so make sure you are appropriately tackling that, along with the due diligence process.

Accounting Standard Changes: Surprise! Did you know that all nonprofit organizations are now in the time period where implementation IS A MUST? What does this mean? Ensuring compliance with state and federal guidelines from an audit perspective is absolutely necessary in order to get an unmodified audit opinion, especially considering that FASB now recognized that nonprofits are “different” than other organizations.

Reporting Submission Deadlines: Granting organizations, especially government organizations, offer virtually no flexibility on submission deadlines for a complete application and all of its attachments- one of those is most likely to be your audited financials. Avoid having your finance team scrambling around in the office to pull together all your nonprofit financial data.

Don’t Kill Your Reputation

The best thing your nonprofit can do if the audit snatchers come is BE PREPARED. Your organization’s finance team is responsible for the preparation and fair representation of its financial statements, including implementation aspects and making sure all financial data is free from material misstatement- whether due to fraud or error.

Ensuring a clean, error-free audit-ready financial statement is critical when it comes to your nonprofit’s reputation. Overall, you need to be able to show what exactly your nonprofit is doing, how you’re doing it, and what your impact is as you pursue your mission.

How Can Sage Intacct Help?

audit ready financials for nonprofitsTired of QuickBooks or that 10-year old accounting system that definitely isn’t scaling while your nonprofit is? Learn how Sage Intacct, the leader in cloud-based financial management, is helping nonprofits- big and small- automate their tracking for funds, donors, and grants, along with helping organizations pull accurate audit-ready financial statements in just a few clicks!

Want further clarification on the information above or want to learn how Dean Dorton can help your nonprofit when it comes to financial management? Contact us!

In the Meantime…Check out the Meals on Wheels Case Study!

You’ve probably heard of Meals on Wheels… a unique and well-known nonprofit helping communities all across America. Check out their case study and how Sage Intacct helped them cut audit preparation time by 60%. (Fun fact: Don Miller, our March CFO Minute participant, was previously the CFO at Meals on Wheels!)

Article Dean Dorton

Dean Dorton Event in Raleigh, North Carolina: Audit-Ready Financials for the Modern Nonprofit CFO

Independent external audits of GAAP financial statements are an inescapable reality—especially for nonprofits who face increasingly stringent scrutiny by individual donors, grant-making foundations or corporations, and even government regulators.

Creating audit-ready financials is easier in theory than in practice, however, because the audit process often quickly bogs down in down in the reconciling and tracing of numbers through the accounting system because the accounting is not well-organized and documented. Thus, the auditor spends far too many hours understanding relatively mundane accounting issues and verifying data flows. Typically, financial statement audits get derailed by accounting and documentation deficiencies in three major areas: revenue, receivables, and consolidation.

Challenge 1: Revenue recognition

GAAP-compliant accounting is a top challenge for finance professionals because the loosely defined regulations and evolving interpretations create a high level of complexity. In many instances, the timing of revenue recognition receives the greatest level of scrutiny—and nonprofits are not exempt. According to MorganFranklin Consulting, “Many ways that nonprofits generate income are considered revenue from contracts with customers and are subject to the new revenue standard.”

One of the best ways to be audit-ready for revenue recognition is to rely on an accounting system with a proven track record of automating, managing, and documenting complex revenue accounting. The software should define separate revenue recognition templates and rules for each individual contract and line item, enabling you to easily defer recognition based on the fulfillment status for each item.

Challenge 2: Accounts receivable

Nonprofits typically have two kinds of receivables: trade receivables, which is money that clients of the organization owe for receiving services; and pledges and grants receivables, which are future gift commitments by donors, foundations, and other grantors. Auditors care about the realizable value of your receivables, which requires an accounting judgment to calculate an allowance for uncollectible accounts. Your accounting software should track transaction details forever and maintain secure access to complete customer histories so that your judgment of collectability is well-founded and defensible.

Challenge 3: Consolidation

Organizations that report a single consolidated set of financial statements for multiple entities are at a greater risk of a misstatement because of the complexity involved in identifying and properly accounting for all of the intercompany transactions and eliminations. Most finance departments manage consolidations using a massive, complex spreadsheet workbook. Yet, any experienced auditor will tell you: these spreadsheets contain formula errors, lack some GL accounts, or are impossible for the auditor to untangle and follow.

The best way to get audit-ready is to automate financial consolidations with completeness and accuracy. Automation reduces the chances of human error when dealing with this high volume of data and calculations, which reduces your overall risk of a material misstatement.

Get audit-ready with the right fund accounting software

In addition to streamlining and automating your daily accounting and period-ending financial closes, the right software platform also makes life easier for your auditor. Automation removes the risk of manual spreadsheet errors, makes your calculations faster and more reliable, and reduces the time the auditor spends rechecking your accounting calculations. And an accounting system that is purpose-built to manage and demonstrate the accounting path sets the stage for you and your auditor to have a positive audit experience.

Learn how cloud financial management software can offer an efficient, paperless audit that saves both you and your auditor time and provides full transparency within your accounting system. Join us on Tuesday, January 29th, from 11:30 a.m. to 2:30 p.m. at the Angus Barn in Raleigh, North Carolina, for a presentation, Audit-Ready Financials for the Nonprofit CFO.

Attendees will qualify for 1.5 CPE credit hours, and a complimentary lunch will be served for all individuals who play a financial role in their organization—including CEOs and presidents.