The biggest headache about audits

Not-for-Profit organizations must get audited in the USA once they reach 750,000 USD in annual revenue. In some cases, they have to reach 1,000,000 USD in revenue. In Netherlands, an organization has to meet 2 of 3 criteria:

Asset value:

• 6,000,000+ EUR in balance sheet assets for medium-sized orgs
• 20,000,000+ EUR in balance sheet assets for large-sized orgs

Net turnover:

• 12,000,000+ EUR for medium-sized orgs
• 40,000,000+ EUR for large-sized orgs

Employees:

• 50+ for medium-sized orgs
• 250+ for large-sized orgs

The best way to prepare for an audit is to keep records as organized as possible. Keep every receipt and reason handy as to why money came in, or why it went out. When your accounting system(s) allow for receipts to be uploaded to a transaction, use it!

There should be a clear flow of information between the organization and the company expected to produce the documents requested by the auditors (either internal or external accounting/bookkeeping team). It is much more annoying to have to request backup documents when the auditors are waiting for it, especially if the audit is behind.

• Anytime a receipt comes in by email, make sure it goes to your financial team right away.
• Make it a point to review reports monthly. Not just for bi-monthly or quarterly board meetings.
• Be clear about how transactions should be tracked. Many NFP use a 'class' system or some other way to separate income and expenses by grant

Income types:

• Memberships
• Grants
• Events
• Donations

These are the 3 top income areas that are common across many NFPs. Grants and events will have related expenses that should be tracked separately. Memberships and donations help the org run day-to-day, carrying the overhead.

Grants often require special reporting. Some grants are restricted and determine how the funds need to be used, others are non-restrictive.

Reporting:

No matter what type of income the org has, clear financials save any day. Review regularly. Monthly is recommended. Review reports by grant. Review as a full summary. Review by quarter, and do comparisons to prior years or periods to help understand variances year over year.

Are you a new NFP and need to get a professional involved in your books? We can help!