April 16, 2020
By Thomas Netznik, CPA, Audit Manager, GRF CPAs & Advisors
In recent years, nonprofits have begun investing in technology that not only appeals to a younger workforce, but also achieves some organizational goals related to digital transformation. Gone are the days when most organizations relied on paper documents and files, and not a moment too soon. The COVID-19 pandemic and resulting stay-at-home orders have dramatically changed the way work is performed. The forward-looking investments organizations made in technology – remote network access, video conferencing software, VIOP, etc. – have helped them continue operations remotely and fulfill their mission to the greatest extent possible during the quarantine.
Like other areas of the organization’s operations, the annual financial statement audit can also be conducted virtually. The question is whether your nonprofit has the appetite as well as the infrastructure necessary. Organizations may also have hesitation about the audit service provider’s management of the process, whether they will receive the same level of service, and the security and efficiency possible without on-site, face-to-face interaction.
Organizations considering a remote or virtual audit for the first time are in luck. Many nonprofits and their audit service providers were early adopters after recognizing a trend and have established best practices that are followed by the industry. They made key investments in technologies that facilitate virtual audits including cloud-based databases, file sharing solutions and communications platforms that allow audit engagements to be performed virtually with greater efficiency, a high level of client service and the security necessary to protect the organization and its stakeholders.
Best Practices for Virtual Audits
While becoming a popular option, is a virtual audit the right choice for your organization? If your nonprofit is considering one for the first time, whether as a result of the COVID-19 crisis or just a change your organization is debating, these industry best practices will reduce your learning curve.
If your organization has not made the transition to a paperless office environment – now is the time. There are several services, software, and platforms available to assist with the transition, but your organization should perform some due diligence to determine what works best given the cost and benefits. Fortunately, many other nonprofit organizations have paved the way and can offer valuable guidance and advice.
Maintain Effective Organization
Once their documents and files are digital, an organization should maintain a centralized filing system on their network. Reliance on others within the organization to provide documentation saved to a desktop or an outdated database can add significant time to the audit. Invest time in network mapping and staff training to speed up the process. Your organization will be able to complete tasks more quickly and more efficiently during the audit process.
Provide Access to Software
Those involved in the audit should have access to the necessary software and platforms so that information is easy to access. Gone are the days of searching through filing cabinet for invoices and check copies. Some organizations are even providing their audit service provider with read-only access to electronic bill payment platforms (or similar software) to “pull” the documentation themselves. The ability to obtain documents and even generate required reports on-demand greatly reduces the number of requests and the amount of communication. Auditor access to this information means less work for the organization’s staff and adds significant efficiency of the process.
Facilitate Good Communication
The most important characteristic of a successful virtual audit is communication. With remote work, emails can become overwhelming and pose a risk of being over-looked or misunderstood. Virtual audit teams should outline good communications practices early and incorporate daily check-ins or meetings by video to keep everyone engaged in the process. This will also help the team stay on top of open items and answer questions as they arise. Successful audit teams also incorporate a list of outstanding items that confirms acknowledgment of requests, demonstrates progress, facilitates follow-up and generally keeps everyone on the same page. The virtual team has to work harder at communication but the time and cost savings are worth the extra effort.
To accompany good communication practices, the organization should identify the appropriate staff contacts for specific requests at the start of the audit process. This will significantly reduce the number of mass emails, improve response times and clear pending items more efficiently.
Establish a Timeline
A remote audit not only offers flexibility in how the audit is conducted but in the timing as well. However if your audit is scheduled for a specific week, it is important for the organization to be prepared in advance. Providing preliminary requests at least a week prior to the audit allows the audit service provider to conduct necessary planning, and select and provide samples to you in advance of the fieldwork. Having these documents ready to review on the first day creates efficiency and reduces the time commitment of your finance staff who are already busy with other day-to-day responsibilities.
The COVID-19 crisis has many nonprofit organizations considering a virtual audit for the first time or looking for ways to improve the process with all team members working remotely. If delaying your annual audit is not an option for your organization this year, consider these best practices to help you develop your virtual audit process. Consult your audit service provider in advance of your normal audit schedule to strategize and outline the right approach. For more information about virtual audits, contact Thomas Netznik, CPA, Audit Manager at email@example.com or 301-951-9090.