Beyond compliance: Getting more from your annual audit

By Trey Kockelman, CPA

 

SUMMARY

The annual audit does not have to be a stressful compliance exercise. When approached as a collaborative partnership, the audit process can help nonprofits strengthen financial operations, identify opportunities for improvement, and build leadership confidence. By embracing learning and working closely with their auditors, nonprofit leaders can turn audits into valuable tools for long-term organizational success. See Frequently Asked Questions.→

 

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Your nonprofit’s annual audit can feel like something to endure rather than embrace.

Between gathering documents, answering your auditor’s questions, and balancing other duties, it can feel like one more item on your already packed to-do list. For executive directors and finance teams with limited resources, the audit can be especially overwhelming.

But an audit doesn’t have to be something your organization simply survives. With the right mindset and audit partner, it can be an opportunity to strengthen your organization and build confidence in its financial operations.

Here’s how your organization can get more value out of the audit process.

Move from audit compliance to collaboration

One of the biggest misconceptions about audits is that they’re adversarial. Many nonprofit leaders assume their auditors are looking for mistakes or trying to catch them in the wrong.

This was the case for our client, Kelli Foster Warder, executive artistic director of Twin Cities-based Artistry, a producing theater and visual arts nonprofit. When we started working with Kelli in 2023, she had recently come to the organization and was feeling overwhelmed and intimated by the audit.

But the truth is, we expect to encounter issues during any organization’s audit; it’s simply the nature of the beast. Our goal is the same as our client’s: a clean audit opinion.

As Kelli’s partner, we worked with her to navigate issues that arose during the audit. We asked lots of questions—not because she was doing something wrong, but because we needed to understand the process. Working together, we were able to complete the audit and brainstorm ways to make the next year’s process even better.

Use the audit as an opportunity for improvement

Yes, an audit can do more than provide assurance over your financial statements. It can also uncover opportunities for strengthening your organization’s financial processes.

For some organizations, areas for improvement might include closing internal control gaps, educating board members on financial reporting, or reviewing processes to ensure best practices are in place.

As auditors, we don’t simply point out risks. Our role as a partner is to help organizations understand why they exist and what steps can be taken to address them.

Be willing to learn

Most nonprofit leaders come into their roles because of their passion for the mission, not because of a deep financial background. And this is okay!

Executive directors, board members, and program leaders shouldn’t feel embarrassed if they don’t understand audit terminology or financial acronyms. In fact, a willingness to learn is a must for a successful audit experience.

Organizations that get the most value from their audits are often those whose leaders are open-minded and engaged in the process. This is something at which Kelli excelled. During our first audit together, she asked thoughtful questions and quickly learned “audit-ese.” She continues to guide her team with calm leadership throughout the process.

As Kelli likes to say, “I didn’t enroll in an MBA program. Audit season enrolled me.”

Of course, the willingness to learn is a two-way street. By meeting nonprofit leaders where they’re at and asking the right questions, we can build understanding—and a powerful partnership—together.

To help you get familiar with terms you may hear during the audit, we created this brief guide to common audit language. Download the guide here.

Look to a brighter audit future with the right partner

Approaching the audit as a partnership instead of an examination can be transformative. Our hope is that it helps you lower your audit-induced stress levels, improve your processes, and better understand your organization.

Our goal as your partner: the audit becomes a tool that helps you position your mission for long-term success. To learn more about how Abdo empowers nonprofits, contact us today.