1. Maintain Clear and Accurate Records
This should be an expectation within your organisation, but sometimes we just need a reminder. Ensure all transactions are promptly recorded with supporting documentation and use consistent coding in your chart of accounts. Ensure:
All transactions are properly recorded in a timely manner.
Supporting documentation, like invoices, receipts, and contracts, are attached or easily accessible.
Bank reconciliations are up-to-date and accurate. Remember to include credit cards, petty cash, grant income, and liability accounts to ensure accuracy.
Payroll and superannuation records are correct and complete.
Good recordkeeping practices don’t just make financial reviews and audits easier, they demonstrate strong organisational governance and your commitment to transparency.
2. Document and Track Funding Agreements
As an NFP, it’s likely you will have income that includes multiple grant and funding agreements. Always ensure you are fully aware of the required reporting for each funding source, as they may have different expectations around financial reporting, performance milestones, and use of funds. It’s critical to maintain a separate audit trail for each grant. Good bookkeeping practices, including using separate accounts, clear project codes and regular reconciliations, will make your reporting much easier and demonstrate your commitment to transparency. If your funding agreement records are well-organised, it not only simplifies the audit process but also strengthens your organisation’s reputation with all stakeholders.
3. Distinguish Restricted vs Unrestricted Funds
Leading on from tracking multiple funding agreements, you could have contractual obligations to use funding for specific purposes. That’s why it’s important to clearly separate revenue and expenditure for restricted grants from funds received for general operational funds. Using tracking categories or separate cost centres will help to support your accurate recording of this.
Clear segregation of funds ensures compliance with grant conditions and also provides transparency to all stakeholders, simplifying the audit and reporting process.
4. Record Journal Entries for Accruals and Prepayments
Be aware that some income, prepaid expenses and superannuation liabilities may need recorded journal entries at year-end, and this may affect your financial statement or audit. (Note: If in doubt, give Susan at WestBAS a call to ensure your journal entries are correct). Here’s a quick preview of just a couple of items that may need journals recorded:
Accrued income (e.g., grants earned but not yet received)
Prepaid expenses (e.g., insurance paid in advance)
Accrued wages and unpaid leave entitlements
Superannuation liabilities not yet paid
5. Maintain a Fixed Asset Register
Establish that all capital purchases are recorded accurately, including the purchase date, cost, assigned depreciation rate, and the physical location of the asset. Maintaining a complete and up-to-date asset register is critical for financial reporting and audit purposes. Ensure any disposal of assets is properly documented, including the method of disposal, date, and any proceeds received. A well-maintained asset register not only supports audit compliance but helps the organisation plan for future capital needs and replacements.
6. Board Approval and Governance Oversight
Remember that financial reviews and audits are not just a finance team responsibility. When preparing for an audit, ensure the board is fully prepared and will be available for auditor questions around governance and general operations. During an audit, always include board minutes showing approval of budgets, financial reports, and any major financial decisions. Minutes should clearly document discussions, resolutions passed, and any conflicts of interest. Well-kept board records and a well-prepared board, not only support audit requirements but also reflect a culture of strong and responsible management within your NFP.
7. Review and Strengthen Internal Controls
When your organisation is dealing with multiple funding sources and different streams of income, one area that auditors will be interested in is your Policies and Procedures, particularly around your finances. Do you have procedures for the authorisation of payments, for example? Do you have transparent procurement and payroll practices? When preparing for audit, double check that policies and procedures are clearly written, consistently updated and applied appropriately within the organisation.
8. Conduct a Pre-Audit Review
This should go without saying! It’s unlikely you’d welcome auditors to delve deep inside your financial records without having taken steps to review your information. However, ensuring you have all your ‘ducks in a row’ is a great idea. Prepare a checklist of required documents, including trial balance, ledgers, and journal listings.
A pre-audit check can highlight:
Missing documentation
Unreconciled accounts
Inconsistencies between financial statements and general records
Addressing issues proactively reduces the risk of audit findings and makes for a smoother, faster audit process.
If you have been through the auditing process before, review prior audit findings and ensure corrective actions have been taken.
9. Engage with Auditors Early
Engaging early with your auditors ensures there are no surprises down the track; clear communication is key. Before the audit begins, confirm the audit timetable and deadlines, as well as a list of preliminary information they will need prepared.
It may help to assign one person to liaise;; with the audit team, someone who can build a relationship and manage their expectations, while providing the information required calmly and professionally.
And finally, remember that audits are not something to fear – they are an opportunity. A clean audit report boosts your NFP organisation’s credibility and supports future fundraising efforts. Even if auditors identify some issues, these can be seen as indicators to help strengthen your systems and processes.
Being open, cooperative, and proactive throughout the audit process sends a strong message about your commitment to transparency and supporting your community.
Need Help Preparing for Your Audit?
At WestBAS, we specialise in supporting NFPs with their bookkeeping, compliance, and audit preparation. Contact us today, and let's make your next audit a success!
If you’d like some further information, here’s a couple of links that may help:
https://www.communitydirectors.com.au/articles/why-an-audit-can-be-a-community-directors-friend