Mention an audit and most nonprofit leaders will feel a chill down their spine. Even though nonprofits aren’t frequent targets of the IRS, annual audits are a necessary reality.
Why, you may ask?
They give you a completely accurate view of your nonprofit’s financial health. They cover things like compliance with accounting regulations and because they are inherently transparent, they are great for building trust with all stakeholders.
However, they aren’t without their challenges.
Nonprofit accounting isn’t exactly straightforward and the complexity is compounded by limited resources. This is why outsourcing annual auditing is so beneficial.
Well, we say beneficial, but we mean crucial. It’s absolutely crucial that NFPs are audited by experts who specialize in their unique accounting systems.
Support for Annual Audits
Audits don’t just happen. They are scheduled to give nonprofits time to properly prepare the financial data that auditors need to carry out their assessment. The thing is, NFPs don’t necessarily have the experience or know-how to ensure their records are in order. This is unfortunate because it can place NFPs at risk of noncompliance with industry regulations and legislation.
Fortunately, NFPs don’t have to struggle on their own. Outsourced accounting firms provide critical support, helping them prepare their financial statements according to GAAP (Generally Accepted Accounting Principle) standards.
Outsourced accounting firms also ensure NFPs have audit-ready financial statements, so they’re prepared for in-depth investigations at any time during the year. This gives nonprofits the assurance they need to continue operations, knowing their financial management is in good hands.
Addressing Vulnerabilities in Financial Management
Nonprofits, like for-profit businesses, face many financial challenges, particularly related to technology and outdated accounting software systems. These challenges can be crippling without the right assistance.
Access to advanced software, like Sage Intacct, can rapidly change an NFP’s fortune, saving it from the kind of financial discrepancies that invite a closer look, which could reveal errors that must be resolved quickly to avoid serious financial damage.
Outsourcing provides NFPs with access to modern systems with advanced automation that reduces the risk of human error and enables them to implement internal controls that further reduce the risk of fraud and financial mismanagement.
Outsourcing financial management ensures NFPs maintain accurate and compliant records but it also frees staff to devote all their attention to mission-focused tasks that enhance their service offerings.
Expert Financial Management
It’s fair to say that many NFPs don’t have the resources to employ an in-house financial team and if they do have accountants on board, it’s not always easy to hang onto them when for-profit businesses offer more attractive payment packages.
Outsourcing is the perfect solution for NFPs to benefit from professional financial management services without forking out for competitive salaries. NFPs also have access to the latest and most advanced accounting systems without having to purchase expensive tools that need regular updating.
The upshot is accurate financial data that is structured for easy auditing. Depending on their requirements, some nonprofits choose accounting companies that provide additional support services, such as training to recognize and avoid common pitfalls that can trip up unprepared NFPs and result in severe penalties.
Compliance with New Accounting Standards
It can be tricky to keep up with changing requirements and evolving accounting standards from the Financial Accounting Standards Board (FASB). However, outsourcing accounting companies must keep up with regulations if they want to stay in business. This is good news for NFPs because it means they are always compliant with standards, like ASC 842 (leases) and ASC 606 (revenue from contracts).
What’s more, NFP accountants have all the latest software and tools necessary to implement new standards and eliminate the risk of non-compliance and penalties. Sophisticated software, especially software with automation and AI features, keeps human error out of the picture. This is crucial during audits when accuracy and compliance are all that stand between NFPS and their tax-exempt status.
Cost-Effective Audit Preparation
Nonprofit organizations are used to pinching pennies and often have to go without full-time accountants or bookkeepers. This is not actually a crisis because outsourcing is a more cost-effective option.
You can 3 Key Benefits Of Outsourcing Accounting And Bookkeeping For Nonprofit Organizations, which is great because your financial data is in one place and not scattered across various systems. This is particularly beneficial if the powers that be decide that your organization is ripe for an audit.
Your expert in NFP accounting has everything they need to prepare your records for an audit. Well-prepared records can significantly reduce audit costs because everything is near at hand. There are no long hunts for misplaced invoices or payroll documents from three years ago.
This makes auditors’ jobs much easier and that is a very good thing.
No one likes to be audited. Not even if their financial records are in perfect order because there’s always that little niggle in the back of the mind that says you’re going to jail.
Nonprofits that use outsourced accounting services, however, can safely ignore the niggle because their finances are safely managed by experts in their niche accounting field.
