Often, when you hear that an organization is being audited, it is automatically associated with negativity. The common reactions are “What did they do wrong,” or “There must have been fraud.” However, the Department of Treasury requires annual audits of local units that have a population of 4,000 or more, and an annual audit is required for charter townships, regardless of population. If a municipality has a population of 4,000 or less, it is required to have an audit every other year. Below are five ways to work smarter, not harder, when preparing for your annual audit.
- Assistance list – Most auditors provide their clients with an assistance list or a “Prepared by Client” (PBC) list. Take advantage of this tool to set yourself up for a smooth audit. The assistance list is a working document and should be updated as you go. If something doesn’t apply, remove it from the list. If the auditors request something each year and it is not on the list, add it to the list. Once the auditors are on-site, it is difficult to juggle daily work, audit requests, and audit preparation. Using this list will help you stay organized for a headache-free audit.
- Internal control documentation – Auditors are required to gain an understanding of internal controls related to the key transaction cycles. They typically rely on internal control narratives and questionnaires. We all know that these take time to update; however, they can be updated during the year. You do not need to wait until audit fieldwork to update these. If you implemented new payroll software during the year, update the payroll internal control documents at that time. Don’t put added work on your plate during an already busy audit preparation time by waiting until fieldwork.
- Debt schedules – This schedule can be updated for the auditors as soon as you make the last debt payment during the fiscal year. If your fiscal year-end is June and you make the last debt payment of the fiscal year in May, you can complete the debt work papers in May. This is another item to check off that assistance list well before field work preparation.
- Communicate with your auditors – Communicate with your auditors throughout the year. It is much more efficient to discuss an issue when it happens and determine the proper way to handle it. While it is fresh in your mind, reach out to the auditors for advice so you can get it right the first time. This could help avoid an adjusting journal entry and potential findings. Also, if there are any issues with the audit process or timing, communicate that with the auditors too. This will give the auditors guidance on what improvements need to be made in the subsequent year. No one is perfect and there is always room for improvement.
- Balance sheet accounts – The auditors will request external evidence to support significant balance sheet accounts. This is something that can be done before the auditors arrive on-site. Providing the external support on a portal or shared drive will reduce the number of questions and audit requests that occur during the audit. It may even reduce the amount of time the auditors need to be on-site if they can get a jump-start on some of the audit procedures in their office.
The audit process involves teamwork from both the organization and the auditor. Good communication should be flowing both ways before, during, and after fieldwork. The common goal is the timely issuance of the audited financial statements. Being prepared for your audit will not only provide a better balance between day-to-day duties and the audit process for key employees, but it will also give the auditors more time to offer suggestions for efficiency and process improvements.