Not-for-profit businesses are crucial establishments in Australia. Currently, there are around 56,000 registered charities in the country, and this number is increasing by 4 per cent each year. Charities empower our social and economic growth, and they need to be supported - instead of bogged down by tedious audits.
Audits and reporting are a big part of not-for-profit operations. Although it can be stressful for most charities, there are a few ways to make it easier. Here are some of the best practices that non-profit organisations can adopt during an audit.
The Australian Charities and Not-for-profit Commission (ACNC) states that non-profit organisations with an annual revenue of more than $250k must undergo an annual audit. This audit should comply with the Australian Auditing Standards and be performed by a registered auditor or auditing company. So how can non-profits prepare for a smooth audit season?
Understand What Will Be Audited
An audit isn’t about scrutinising minor faults of the non-profit. Instead, it’s done to ensure that there are no red tapes in the organisation. However, larger charities do have more reporting obligations, such as submitting an audited financial statement.
Non-profits should not just focus on documentation, especially if it’s paper. Instead, a better approach would be to focus on standard operating procedures (SOPs). Ideally, each process in the company should have a flowchart that should be shown to auditors during an audit. The end goal is not to produce more documents, but to ensure that the processes work.
Prepare the Audit Documents
Once the scope of the audit has been determined, it’s important to collect the relevant documents. Generally, the ACNC requires all registered charities to submit an Annual Information Statement. In addition, larger charities with an annual income of above $250,000 must submit additional financial reports such as profit and loss statements and cash flow statements.
It’s good practice to ensure that these documents are collected during the year. Non-profits can prepare either electronic or hard copies of an “audit folder” with all the required documents such as bank accounts, transaction receipts, payroll, and other documents. A specific person should be assigned in each department to keep track of all audit requirements and documents throughout the year.
Don’t Skip Pre-Audits
As the audit draws nearer, non-profits should always conduct a pre-audit as a preliminary step. Pre-audits can be done by the company’s employees or an independent individual or organisation. It involves looking through all the information to ensure its accuracy before the official audit.
Although this step may seem optional and unnecessary, it’s important not to skip it. A pre-audit allows the non-profit to identify and correct any errors in financial statements before they are highlighted in an actual audit. It also ensures that the real audit is carried out smoothly and without any time wasted.
Perform Mock Audits
A mock audit is another step that should be done internally before the actual audit. Essentially, it helps employees become familiar with the process and documents needed during an audit, especially if they are new.
How non-profits perform mock audits may vary depending on the charity they operate, but its purpose is generally to mirror the actual audit. For example, non-profits can have inter-department audits in which different departments simulate the actual audit. All mock audits should come with a goal, a timeframe, and be finished with suggestions for improvements for the actual audit.
Look into Automation
Many auditors are slowly phasing out paper documents because they’re tedious to maintain and prone to being misplaced. Instead, digital documents such as online cash flow statements, grant reports, and online expense receipts are now widely accepted in audits. They are easily retrievable in an audit and have a higher chance of preventing errors and fraud.
As such, non-profits should automate their processes where they can. It means removing most manual functions such as applying for leave on paper and submitting paper reimbursement claims. More importantly, automation is solid proof that non-profits are looking into efficient processes rather than documentation.
Audits can be a scary time for non-profits, but it can become much easier with careful planning and automation. To learn more about Budgetly and how we can automate your non-profit expenses, download our eBook, Managing Expenses with Budgetly. Or schedule a demo with us today.
