Church Audit: How to Prepare for a Nonprofit or Church Audit

Whether it is an external or internal nonprofit or church audit, there are certain steps you can take to prepare for it. First of all…take a deep breath… an audit is not a reflection on the competence or integrity of your financial staff. Rather, it is a routine procedure designed to protect both your staff and your church or nonprofit. Second…you need know what your nonprofit or church audit should accomplish. An audit should:

* Independently verify the reports of the treasurer(s);
* Follow the funds and see if proper steps are being taken in handling them;
* Document that donated funds have been used as stipulated by the donors.

In addition to tracking the cash through the system, an auditor typically will evaluate:

* Accounting controls (systems that reduce the possibility of loss or errors);
* Segregation of duties (assurances that more than one person is involved in critical steps in handling money so that there can be checks and balances);
* Reasonableness of systems and procedures in the light of all factors, including the size of the organization and its budget;
* Adequacy of insurance coverage;
* Records that show donors’ stipulations for the use of contributions made to your organization.

Third…now that you know what your nonprofit or church audit should accomplish…let’s look at what kind of information the auditor is going to need to look at. Whether it is an external or internal audit, there are certain documents you will need to have available. They are:

* Copies of all your organizations policies and procedures related to finance and treasury functions and copies of minute approving those policies.
* Listing of all bank and investment accounts, including the person authorized to sign on each, and including any special use accounts under the control of the pastor(s) or administrator and in the name of the nonprofit or church.
* All financial statements for each month of the year, plus December of the prior year and January of the subsequent year (a fourteen month period).
* Bank and investment account statements for the same period.
* Bank reconciliations for that same period.
* Original books of entry, which will be the general and subsidiary journals; for those books that are computerized, a print-out of all transactions by account for the entire year.
* All paid invoices, payroll data and files (including 941′s, year-end W-2′s, 1099′s and transmittal forms), income transmittals and deposit records for the fourteen month period.
* The Financial Secretary’s records and other income records for the same period.

Remember…the purpose of internal audit procedures is to ensure that the organization’s system of internal controls is operating as intended. Also remember…conducting an audit is not a symbol of distrust…it is a mark of responsibility.