Ensuring Nonprofit Success: How to Act on Audit Findings Effectively

External audits are essential for ensuring that your nonprofit’s financial statements are accurate and in compliance with U.S. Generally Accepted Accounting Principles (GAAP). These audits also play a crucial role in identifying and preventing occupational fraud. However, the true value of an audit lies in how effectively your organization responds to the findings and recommendations presented in the report. Failing to address these issues can jeopardize your nonprofit’s future.

Understanding the Audit Report

Once auditors complete their engagement, they typically present a draft report to the nonprofit’s audit committee, executive director, and senior financial staff. It is vital that these key individuals thoroughly review the draft before it is shared with the full board of directors.

Before the board presentation, the audit committee and management should meet with the auditors to discuss the report. Auditors often provide a management letter that outlines operational areas and controls that require improvement. Your team should clearly articulate how the organization plans to address these areas, and this plan can be incorporated into the final management letter.

During this meeting, the audit committee should ensure the audit was comprehensive. Auditors will also issue a governance letter that confirms the cooperation received from your staff, whether all requested documentation was provided, and any difficulties encountered during the audit. This letter will also detail any accounting adjustments made and significant changes to the audit plan, along with their reasons. Additionally, the auditors will identify any unresolved matters. The audit committee should assess whether there were any conflicts of interest that could have influenced the audit’s scope.

Taking Next Steps

The final audit report will conclude whether your organization’s financial statements are fairly presented according to GAAP, without any material inaccuracies or misrepresentations.

In the management letter, auditors may also highlight specific concerns related to material internal control issues. Strong internal controls are vital for detecting, preventing, and correcting misstatements that could compromise the integrity of your financial statements, whether due to error or fraud. If auditors identify weaknesses in your internal controls, it is crucial to address these promptly. Consider implementing new controls, such as segregating financial duties or adopting updated accounting practices or software. These steps can enhance fraud prevention, improve the accuracy of your financial statements, and potentially reduce future audit costs.

Making Your Audit Effective

The effectiveness of an audit hinges on how well the findings are received and acted upon. By taking decisive action on audit findings, your nonprofit can bolster its financial integrity, enhance stakeholder confidence, and ensure a sustainable future.

How HoganTaylor Can Help

The HoganTaylor Nonprofit team of business advisors and CPAs is comprised of former CFOs, controllers, and industry experts with extensive experience providing the guidance organizations need to lean forward again in their leadership. If you have any questions about this content, or if you would like more information about HoganTaylor’s Nonprofit practice, please contact Jack Murray, CPA, Nonprofit Practice Lead.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.