Today’s nonprofit organizations operate in an environment of constant scrutiny. A 24-hour news cycle and social media quickly amplify any headlines about financial neglect or malfeasance at nonprofit organizations and may cause reputational damage. It pays to remain vigilant about your stewardship and financial transparency.
Nonprofit audits are a great way to demonstrate financial transparency and can benefit your organization in four ways:
- Maintain your organization’s glowing reputation to attract new donors.
- Build trust with donors and secure continued and additional funding.
- Demonstrate accountability and compliance.
- Increase transparency into financial management, performance, and impact.
A few practical challenges restrain many nonprofits, especially smaller ones, from obtaining a nonprofit audit. Audits tend to be expensive. And audits can require a lot of effort from the accounting team to prepare audit-ready financials. Fortunately, having a remote audit can reduce the cost of an audit and having modern nonprofit accounting software can reduce the complexity of preparation.
In this article, we will examine seven benefits of a remote audit for nonprofit organizations and then discuss the functionality your financial management system will need to support remote audits.
Do all nonprofit organizations need audits?
Many nonprofits benefit from obtaining an audit opinion—and some are required to have regular audits. To determine whether your organization is legally required to have a nonprofit audit, consult these resources by the National Council of Nonprofits:
Many grant-funded nonprofits need an audit to satisfy grant requirements or comply with federal funding regulations. Additionally, many high-net-worth donors and family funds require routine audits. For these reasons and more, most larger nonprofits ($250,000+ in funding) and many other organizations will want to obtain an audit.
How is a remote audit different from a traditional audit?
A traditional audit is usually an on-site process where an auditor (or a team of auditors for larger organizations) examines your financial documents, accounting processes, and internal controls to ensure there are no irregularities or mismanagement. The process is usually long and requires significant preparation by your organization. The auditor’s travel expenses are built into the audit price, driving up costs. The cost of an audit may be prohibitively expensive for smaller nonprofits.
In contrast, auditors conduct remote audits from their own offices, working with you through a secure online exchange of information and via secure access to your cloud accounting system. In this scenario, permission-based access is granted so the auditor only has access to the information you determine necessary to conduct the audit. This arrangement speeds the audit process and eliminates the need for travel which reduces expenses. The audit’s scheduling can remain more flexible.
“Sage Intacct is very helpful in meeting the compliance requirements of public funding grants. Our donors want to see that we receive a clean audit opinion. The internal controls in Sage Intacct are critical.”
~ Faith Noble, CFO, Towards Employment
7 benefits of remote audits
Time and money savings are the two primary benefits of a remote audit, as opposed to a traditional on-site audit. But there are even more reasons to consider a remote audit. Here are seven benefits associated with conducting your audit remotely:
- Cost savings: A remote audit can lead to significant cost savings because the auditor doesn’t need to visit your physical location. Nonprofits with international entities or multiple geographic locations will especially benefit from eliminating auditor travel costs.
- Time savings: Remote audits are a more efficient use of the auditor’s time and your finance team’s resources. No more time spent digging through file cabinets.
- Convenience: With remote access to financial data and the ability to meet virtually using web conferencing solutions, getting your auditor the necessary information to complete the audit can be much easier.
- Flexibility: Your staff in multiple locations can collaborate more efficiently with a remote auditor. Cloud-based remote audits may also provide more flexibility to set up meetings outside of regular work hours.
- Access to auditors: With a remote audit, even organizations in remote or underserved areas can undergo effective audits and choose an auditor specializing in the nonprofit industry.
- Minimized disruption: You won’t need to set up space within your office for the auditor to work. Having the audit conducted remotely will allow your team to continue their work uninterrupted.
- Secure data sharing: With cloud-based accounting solutions, remote nonprofit audits can be conducted securely, with auditors sharing secure access to financial data while your organization maintains control over the data.
If you are thinking that a remote audit sounds much more convenient than a traditional audit, make sure your organization has the right technology infrastructure to support remote auditing. It will require a modern financial management system capable of producing audit-ready financials and enhancing remote collaboration.
Essential accounting functionality to support remote audits
If your accounting software is on-premises or lacks features, it can be difficult to sort through accounting records and find the information needed to prepare audit-ready financials. Cloud nonprofit accounting software streamlines and automates:
- Organization and tracking of funding sources
- Documentation of accounting treatments
- Calculations and reconciliations
- Consolidations and closing the books
- Preparation of financial statements
“One of the things that we do is give our auditor a view-only access to our Sage Intacct system. He can go in and, if he wanted to, audit every single transaction. He doesn’t do that, but it’s there. It cuts down on the time I need to spend with him on audits. He’s got the access and it makes our audit go so much quicker. I can do an audit in one week with Sage Intacct. Can you believe it? A week. That is huge!”
~ Donna Dickt, Executive Director, NATCO
To enhance and facilitate remote audits, here are a few of the key functionalities you will want your cloud nonprofit accounting system to provide:
- Security features: Reinforce internal controls and secure sensitive financial information with user access restrictions that can be defined by role for individual users or defined by department or entity.
- Read-only auditor access: If your system can grant read-only access to auditors, they can locate data themselves that they would otherwise interrupt your team to locate and provide.
- Audit logs and audit trails: Track the when, what, and who of every transaction entered, and any subsequent modifications.
- Dimensional database: When built on top of a table-driven database architecture, your accounting system may allow you to tag transactions with multiple dimensions to capture the full context. Dimensions enable powerful slice and dice reporting helpful for creating audit-ready financials and answering auditor questions.
- Embedded communications: Auditors ask questions when they can’t understand why an action was undertaken regarding a transaction. If your accounting software documents all team communications inside the system, your auditor will see how you resolved journal entries, accounts, projects, invoices, purchases, and other transactions.
- Automated internal controls: A cloud accounting system should automate internal workflows such as purchase requisitions and approvals, bringing consistency and transparency to the process. Smart rules help you specify the data required for documentation and block or warn accountants about transactions that don’t follow the rules for proactive issue resolution.
A clean audit opinion goes a long way to showcase your organization’s financial stewardship and transparency to funding organizations and major donors. Remote audits offer many benefits over traditional audits, including time savings and potentially lower audit costs. The right financial management software can streamline your audit prep and take your documentation to the next level. To get the inside scoop on how to lay a solid foundation for a successful remote audit, download the Accelerating Your Nonprofit Audit with Audit-Ready Financials e-book.
Accelerating your Nonprofit audit with audit ready financials
Gain key insights into audit readiness and get inspired by Nonprofits who have already shortened audit prep time by up to 62%.