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Thursday, September 17, 2020

Best Practices for Nonprofits: How to Prepare for a Remote Audit


The coronavirus (COVID-19) pandemic has led to shelter-in-place orders across the United States and prompted remote work policies for many nonprofit organizations and CPA firms. As a result, the annual on-site audit fieldwork has been replaced with a remote audit.

Our team at Armanino has issued many audit reports performed in a remote work environment, and we’ve learned some lessons along the way. Below are select best practices and tips to help your finance and accounting team successfully prepare for and complete an audit in today’s remote world.

  • Don’t underestimate the work that will be required to fulfill the audit requests. The audit preparation process may take longer than it has in prior years. Whereas before management would have been able to provide the auditors with hard copy documents (bank statements, invoices, contracts, etc.), these items will now need to be scanned and sent to the auditors. The process of converting documents to a soft copy format and sending to the auditors will require more time and effort.

  • Review and discuss the impact of new accounting standards early in the process. In particular, consider ASU 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. Identify significant or complex grants or contracts where the accounting is not clear and discuss the accounting treatment with the audit team early in the process. The adoption of this standard may also require additional disclosure, so determine any additional disclosure requirements at the start of the audit.

  • Review the schedule request in its entirety with the audit team. Schedule a meeting to discuss the audit plan and prepared by client (PBC) request items. Identify items where a soft copy format will be difficult to provide and discuss how these requests will be handled.

  • If your organization has received a loan under the Payroll Protection Program (PPP), determine how the loan will be accounted for. There are various accounting options available for nonprofits, but most commonly you will either treat the PPP loan as a government grant under ASU 2018-08 or as debt under ASC 470. Discuss the accounting treatment with the auditors and identify the support that will be required.

  • If your organization is required to complete a single audit, consider the challenges that may arise with fulfilling single audit requests. There may be certain files and documents, such as tenant, patient and personnel files, timesheets and others where a soft copy format is not readily available or is not available at all. Identify these items in advance and discuss with the audit team a plan for reviewing these files. Also, there has been a significant influx of federal funding due to the pandemic, and certain organizations may be required to undergo a single audit for the first time. If your organization has received any sort of government awards, discuss this with the audit team to ascertain if a single audit is required.

  • Consider the impact to your internal control environment, policies and procedures. Your organization’s internal control environment is likely to be different during the pre- and post-pandemic periods. This may require management to produce additional documentation and for the audit team to perform additional internal controls testing.

  • Utilize technology as much as possible. Videoconferencing tools will enable your team and the audit team to conduct live interviews and share documents for simultaneous viewing. The utilization of secure web portals will be critical for the sharing of secure documents.

  • Conduct virtual meetings with the camera on. This will improve the connection between your organization and the audit team and better simulate an in-person meeting.

  • Be flexible with work schedules. Both your organization and the audit team may need to adjust timing and schedules to accommodate one another’s remote work situation. Individuals with children who require homeschooling may not be available during certain periods of the day, for example. Communication is key to determining a work schedule that works for all.

For many entities, this will be their first audit performed completely remotely. These are challenging times indeed, but with timely communication and early planning, you can achieve a successful, high-quality result.

Have questions or want to learn more? Contact our nonprofit team.

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