The annual audit scramble: The hidden costs for not-for-profit organizations

June 04, 2019

OS_22May19_Food-Banks_Website_Audit-Scramble_LandingPage_679x220.jpg

Every spring, not long after the annual Easter-egg hunt, charities and not-for-profit organizations (NPOs) scramble to prepare for year-end. The majority of NPOs are audited every April or May, a requirement of maintaining charitable or not-for-profit status. Government-funded organizations are subject to a second yearly audit, called a transfer payment annual reconciliation (TPAR) audit, reviewing spending by program.

Whether preparing for one or two audits, the annual scramble is often a source of stress for not-for-profit, charitable, and non-governmental (NGO) executive directors (EDs) and for volunteer board members.

When the audit goes wrong

Audit-season stresses run the gamut from bookkeeping inefficiencies to public-relations crises. Audits can go ‘offside’ because:

  • the books are messy (entries are in the wrong account, for instance)
  • finance teams don’t have everything ready (support for the journal entries―invoices, for example―isn’t available)
  • the discovery of fraud or theft.

One very common consequence of bad bookkeeping: audits take more time. They cost more money.

The hidden costs

The most damaging impacts of poor-quality records are measured as opportunity costs: poor bookkeeping can influence all from the viability of an NPO to the capacity to innovate on program delivery―ultimately preventing executive directors and boards from accomplishing the organization’s mission.

Fortunately, a new fiscal year presents new opportunities. June is an ideal time for EDs and board members to take a fresh look at working on the organization―rather than working in the organization.

Time spent on bookkeeping is necessary, but it is not necessarily the best use of an ED’s time (especially not time spent chasing inefficiencies or errors) or the board’s (which is most often ‘wasted’ by receiving out-of-date or incorrect financial data). Rather, executive directors and board members should focus on the viability and vision of the charity or not-for-profit, and on what helps accomplish those ends, such as volunteer or staff engagement. No ED should have to say, “I can’t take a meeting with a donor―I’m caught up in an accounting nightmare.”

Finding solutions

The first step toward working in the organization rather than on the organization: identify the sources of stress in the not-for-profit. Then, identify solutions.

  • If bookkeeping is an issue, as it frequently is, then accounting and audit services are of value. Few charities can justify hiring an $100,000-a-year chartered professional accountant (CPA), but most not-for-profits can save by investing in a less costly outsourcing option―even over the expense of a less-skilled bookkeeper, when the impact of the books is measured in audit costs and lost opportunities.
  • If payroll-tax compliance is a source of stress in the organization, payroll solutions will lessen time spent focused on anything other than what produces results for the charity, not-for-profit, or NGO.

How BDO can help

BDO offers bookkeeping, accounting, auditing, payroll, HR, and cybersecurity solutions individually or in a suite to help organizations be more efficient and effective―so EDs and boards can work to fulfill the strategic plan and not worry about year-end audit stresses.

To increase strategic success and decrease audit stress next fiscal year, contact us to learn more about how BDO Outsourcing can help your charity, not-for-profit, or non-governmental organization.

To learn more about preventing fraud or theft, download our fraud and theft prevention checklist.

Download the checklist