Nonprofit audits can be stressful to say the least, particularly if you are not prepared. The best way to prepare for a nonprofit audit is to be proactive and plan ahead. No organization likes being caught off-guard, especially by an auditor. That’s why fund accounting software is so important for nonprofit organizations. With the right fund accounting software solution, your nonprofit can enter into an audit knowing that you have the right information and documentation at your fingertips. A true fund accounting system will also help the auditor perform a more efficient and thorough audit. So it’s a win-win for both your organization and the auditor.
Fund accounting software, such as Sage 100 Fund Accounting, addresses specific nonprofit audit needs, such as tracking and reporting on individual funds from multiple sources and complying with FASB, GASB, and other nonprofit reporting requirements. The flexible setup of fund accounting software and its built-in reporting will help your organization master critical accounting and administrative tasks all while ensuring that your organization’s accounting is accurate and well-maintained.
Fund accounting software provides many features that will help your nonprofit organization prepare for an audit. Some of the capabilities you will find in the software solution include:
- Comprehensive security for your nonprofit’s database by user, function, and account.
- A powerful built-in report writer with consistent setup selections for transaction analysis and financial reporting that results in unprecedented ease of use. A good fund accounting software solution will include FASB- and GASB-compliant reporting and drill-down functionality.
- A table-driven chart of accounts structure offers users an unlimited number of reporting dimensions. The segmented chart of accounts makes tracking donor-imposed restrictions and board-approved designations of funds manageable.
- Account inquiry tools that feature drill-down from account balance to source transactions.
- Extensive comparative nonprofit budget reporting.
- User-defined fields to track attributes and performance data on records such as vendors, customers, programs, and source transactions.
- An extensive audit trail for transactions, system changes, and modifications to master records throughout the fund accounting system.
- Direct export to Excel throughout the fund accounting solution to facilitate spreadsheet analysis.
- Ability to establish permissions to access the data tables directly using Crystal Reports, Microsoft Access, or any other ODBC-compliant application, making special queries or audit-sampling easy.
The right fund accounting software (that includes the features listed above) will help your organization achieve accountability and help you better prepare for a nonprofit financial audit. In addition to investing in a fund accounting software solution, there are simple steps you can take to ensure a successful audit. Keep the following tips in mind as you prepare your nonprofit organization for your upcoming audit:
- Establish Effective Accounting Practices
A nonprofit organization’s accounting practice is the main scrutiny of a nonprofit auditor. Your fund accounting system will be carefully analyzed to look for unethical accounting practices or mistakes. The Internal Revenue Service (IRS) or an independent financial auditor will analyze the policies and safeguards put in place to protect your organization’s cash and financial records from theft or mismanagement. If you have a fund accounting software system in place, your organization should be protected adequately. Fund accounting solutions, such as Sage 100 Fund Accounting, have extra security precautions in place to protect your organization from such occurrences and are looked upon as valuable and effective tools in the eyes of auditors.Auditors will also compare metrics, such as the number of reporting errors, from the current year to past years. Make sure that your accounts are running according to code prior to your nonprofit audit. This will save you a lot of time and stress when the auditor comes around.
- Have Copies of All Financial Reports and Statements Ready and Available
Make sure that you have copies of every internal report and financial statement shared with the supervisors and managers during the period after the previous audit. These reports, which were produced to keep those higher-up in the organization up to date with the financial climate of the organization, will be the main focus of the auditor’s attention. The auditor will also investigate your fund accounting system to ensure that it is sharing financial information and communicating according to industry standards.Nonprofits are also required to submit periodic reports to the government, including the IRS. The auditor will review these reporting procedures to ensure accuracy and make sure the reports are submitted in a timely manner. Fund accounting software can help you product these reports on-time and submit them to the required agencies.
- Make Sure You a Properly Distributing Donated Funds
Nonprofits are not only expected to, but they are required to, use their funds from donors in a responsible manner. Nonprofit managers must pay careful attention to the way donated funds are distributed throughout the organization. A comprehensive nonprofit audit will analyze the way these donations and grants are used throughout the year. With the help of a fund accounting system, you can properly manage and channel these funds to the proper area of the organization.Auditors compute the relative percentages of each type of income distribution and compare it to the results of other organizations serving similar areas of need. The salary levels of top managers will be reviewed. Additional expenses, such as bonus pay, vacations and other incentives, will also be reviewed to ensure your nonprofit organization is spending its donated funds wisely and appropriately. Auditors will also analyze any investments held by your organization and determine, through review of the historical and expected future returns, whether your organization is investing its funds wisely.
Overall, nonprofit fund accounting software can ensure that your organization is adequately prepared for an audit. If you are managing your finances appropriately within the system, you should not be caught off-guard when the auditor arrives. Fund accounting software provides you with all of the tools you need to come out of the audit unscathed.
For more information about how fund accounting software can protect your organization and assist you in an audit, shoot us an email or give us a call at (503) 648 – 9051. We’d be more than happy to guide you through the many benefits fund accounting software (such as Sage 100 Fund Accounting) can bring to your organization.