Audit time is just around the corner. Are you ready?

Published December 9, 2017

Whether your organization’s year-end is December 31, March 31, or some other time during the year, the annual audit is always a source of stress for organizations. It’s that time of the year when your organization is put under a microscope and tested to ensure its financial affairs are in order. An audit can be a significant drain on staff time at all levels, but some forward planning and attention goes a long way toward simplifying the process.

In my 25 years of experience providing bookkeeping and accounting services to sport organizations, having a well-functioning accounting system is the basis for making the audit experience much smoother and less expensive. Implementing a concise financial management system saves time for both staff and the auditor, and helps to build a level of trust with the auditor which can be beneficial when questions are raised.

I have seen all variety of financial procedures, some excellent and some not so good, ranging from the proverbial shoebox of receipts to a fully integrated, concisely organized system. Regardless of the size of your organization, there are some basic processes that all organizations should implement, not only to be prepared for an audit but also to ensure the Board is upholding its fiduciary responsibility to manage the financial affairs of the organization.

Clear, relevant chart of accounts
Creating a chart of accounts should be done with an experienced financial manager or accountant. The layout of the chart should meet the reporting needs of the organization - either project-based or cost centre based. Most accounting software comes with templates of charts of accounts that can be quickly setup but in many cases these are not relevant to the organization’s business and need to be manually changed. Taking the time to get the chart of accounts right will save time in the long run and allow you to easily create reports that provide relevant information.

Annual, Board-approved budgets
A budget provides a road map for making financial decisions throughout the year. It should be developed prior to the start of the year and be approved by the Board. A recent webinar I did on this topic (Financial Literacy 2.0 – Budget Management) provided some useful information and the recording is available for purchase if you missed the webinar.

Regular financial statements
Financial statements should be prepared monthly for staff to review. The Board should receive and review quarterly financial reports, at a minimum, and understand what the statements are saying about the financial health of the organization. My first financial literacy webinar (Financial Literacy for Staff, Volunteers and Board Members) and a previous blogpost may be helpful here for more information.

Organized filing system
This is perhaps the bane of most auditors. Nothing will add to the cost of an audit faster that having a disorganized filing system that does not allow the auditor to easily find the documents they are looking for. This includes such things as:

• Supplier invoices organized and filed in some logical manner
• Back up receipts for all credit card statements
• Copies of all funding agreements
• Lease and insurance papers
• Employee contracts
• Government remittance reports
• Bank statements and monthly reconciliations
• Deposit records

Monthly bank reconciliations
As a best practice in financial management, all bank accounts should be reconciled monthly. The bank statements and reconciliations should be reviewed by a senior staff person who is not responsible for doing the reconciliation. This second review adds a layer of oversight to protect against any possible errors or misappropriation of funds.

Reconciliations of balance sheet accounts
All balance sheet accounts should have a supporting reconciliation that provides details on the final figure. For the bank accounts, this would be the monthly bank reconciliation. For Accounts Receivable and Payables, this would be the detailed customer or vendor outstanding amount listing. Similarly, Prepaid Expenses and Deferred Revenue should also have a detailed ledger showing the specific amounts that total to the balance.

Perhaps the most important aspect of the financial cycle is ensuring that monthly financial statements are prepared in a timely manner. Consistent delays in receiving these reports may be a sign that there is something wrong with your accounting process.

If you need support with your financial management and accounting process, please feel free to contact me - keh@sportlaw.ca