Nonprofit Adviser: Chyla Graham
Nonprofit

Dear Nonprofit CFO: Be Thankful for Audits. Yes, You Read That Right

By Chyla Graham, CPA

Bringing in an independent auditor is expensive, and the process can be trying. I get it. It’s understandable for a nonprofit CFO to look at an audit as an ordeal to be endured rather than an opportunity for growth.

Don’t. You’re paying for and devoting significant time to this process, so make the most of it.

As a former auditor before moving to an advisory role, my best advice on maximizing an independent audit is to prepare well in advance, ask lots of questions during the process and then read the report when it arrives. Focus on getting practical tips on how to put recommendations into action: “How can we do this better? What are some best practices? We’re thinking about doing X next year, what are your thoughts?”

Audits are generally required for larger nonprofits that receive state or federal government funding (some guidelines here) to attest that records and year-end financial statements reflect the organization’s true financial standing based on GAAP.

Audits are expensive, generally starting around $4,000 and going up from there. Some nonprofits can get by with less-expensive options, such as a review or compilation; here is an explanation of the differences.

A big reason for the price difference is that with an independent audit, the CPA is putting her firm’s name and reputation on the line when she expresses an opinion on whether your financial statements are presented fairly, in all material respects, in accordance with applicable financial reporting frameworks. Given the level of comfort that assurance provides to donors, it may be worth having an audit done even if it’s not strictly required. I advise nonprofits that are within a few thousand dollars of the audit limit in their states or that plan to go after large grants to be proactive. Ask your fundraising team whether any potential donors have asked for an audit statement. Are there grants you did not apply for because they required an audit?

In addition, while of course they won’t name names, it’s within scope and ethical guidelines for your auditors to share best practices and smart ideas they’ve seen at similar nonprofits, so ask.

Ready to Go

My top advice to CFOs prepping for an audit:

  • Maximize your time with the auditor by getting a list of required items, such as board minutes and reconciliation documents, well in advance to give your staff time to get ready. Preparation is so critical.
  • While the auditor may not be a tax professional, for example, most will be happy to reach out to colleagues in their firms who do have specialized expertise to answer your questions. Take advantage.
  • Get references from other nonprofits in your area, then interview candidates. Ask what the process will look like, how long the audit is expected to take and what similar nonprofits she’s worked with. Get at least three quotes, and don’t just select the cheapest.

One cautionary tale about going with the lowest bidder: I worked very briefly for one audit firm (it’s not even on my résumé). On my first engagement, the client’s accountant told me to run for the hills. The firm’s practice was to underbid everyone else, but the client felt the firm owner rushed the job, didn’t offer enough useful advice, and worst of all reported items that had already been fixed. And I couldn’t say he was wrong.

When I got a new job, that member of the client’s team was excited for me. This illustrates why it’s important to get peer references to ensure a firm will mesh with your staff culture and organizational goals.

Once you have your report in hand, use it! Having that outside validation adds new a level of credibility. Reach out to your donor list. Announce on your website that the report is available on request. Make sure your grant writers know the process is complete. After all, you worked for it.

Chyla Graham is a Denver-based CPA and president of CNRG Accounting Advisory. She performed nonprofit audits before moving to an advisory role.


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