The Importance of being Audited
Recently the Idaho Nonprofit Center completed an audit of our 2016 financial records. I know I probably just lost 50% of my readers, but I assure you what I’m going to tell you is GOOD STUFF. Financials and audits are not the sexiest topics for an article, but this is no joke: they are so very important.
Audits are expensive but worth it. One of the questions we get asked routinely is “Do we have to have our financials audited every year?” and the answer is “No, not unless a funder requires it, but you should do it anyway.” Here’s why:
One of the best things to come from our audit was also a review of our financial controls. What we learned is that our accounting specialist, Star Brumfield, is really pretty awesome at her job. We’re lucky that she’s very passionate about numbers and also equally passionate having processes in place for everything related to our finances. Our finances and financial controls are in great shape thanks to her efforts.
We also learned how we can enhance some of the controls we already have in place. A better system was developed to track deposits and the accounts they are assigned to when dropping off a pile of checks to the bank. Now we each review a list of the deposits and account codes before we go to the bank. This helps us with accuracy and accountability.
Developing a system for tracking in-kind contributions is another thing we learned. In all honesty, we used to do a review in December of the previous 12 months and make an estimate of our in-kind contributions. We did a pretty good job with estimating, but it wasn’t accurate and what we realized is that we failed to capture everything.
Now we have a solid process for acknowledging in-kind contributions and recording them on our financial reports on a quarterly basis. Reviewing this with our board as part of our quarterly financial review and forecast process has been eye-opening in a good way. It’s important for us to see how much we do get in in-kind contributions so we know the true cost of doing business and running our programs and services. Also, it's wonderful to show our funders how much support we receive from the community. It demonstrates a broader buy-in on our mission and the work we do.
Another area of concern was the level of control the CEO (me!) has over payroll processing. While we had an internal control to help with accuracy and transparency, Harris & Co was able to identify additional controls to enhance what we already had in place.
Probably the biggest change to come from the audit this year is that we are now tracking our time as it relates to our programs, services, and events. Many nonprofits already do this by tracking staff time within your financial reports and program budgets. We have always used a (pretty accurate) formula to assign time at year end.
However, beginning with FY 2018 all nonprofits will be required to report “functional expenses” on their 990s and developing a time tracking system is our first step in being able to do so. We are in the process of testing a few methods of tracking so that beginning January 1, 2018 we will have a solid process in place. I look forward to seeing how much staff time is dedicated to each of our programs and services giving us a more realistic picture of what it takes to run the center in order to meet the needs of our sector.
To that end, I would like to encourage you to register to attend the annual statewide nonprofit conference happening Sept. 7 - 8. Our audit firm, Harris & Co. will be presenting a breakout session called Leverage your Financials to Create Sustainability and Growth, where they will touch upon many of these same themes.
Understanding and implementing solid financial controls and having your finances audited are both best practices for nonprofits, of any size. Reviewing your financials and forecasting quarterly is a great way to stay on track and updating your budget so there are no surprises at the end of the year. Having audited financials AND tracking in-kind contributions are very helpful for many grant applications.
I know this isn’t the most exciting topic for most people, but it one of the most important things any nonprofit should pay close attention to.
Thanks for reading and I hope it is helpful to you!
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