How can charities achieve a smooth audit?

Our recent article focussed on the thresholds applicable to charities for independent examinations and audits. If you have recently exceeded the audit threshold for the first time, preparing for your year-end audit can be a daunting task.

In this article, we set out some of the key points and recommendations for ensuring a smooth audit process.

Keep documentation up-to-date

Thorough documentation is arguably one of the key ingredients of a charity audit; it’s important to maintain detailed records for all transactions. At Saffery, our income testing focuses on source documents, so we’d suggest that:

1. For legacy income, given the sometimes-uncertain nature of when the cash will be received, it’s crucial to retain and organise all communication from solicitors used in determining when to recognise income, including date received, the individual to which the legacy relates and the expected amount. A spreadsheet of all notified legacies provides a useful summary for our teams to review.
2. A list of donations received should be maintained on an ongoing basis to accurately record amounts received, the name of the donor, and the date provided. If donations are not recorded within an online system, we recommend using a spreadsheet so that individual donations can be easily located and linked back to the financial system and bank statements.
3. Similar advice applies for all other income streams, such as trading or rental income – we again recommend maintaining a record of individual items of income outside of the financial system including date, amount and detail so that items are easily identifiable.

Financial reporting accuracy

It’s important that your financial statements are prepared in accordance with the Charities SORP. While preparing the year-end accounts, if you’re unsure or the Charity SORP is unclear, engage with the audit team early on to ensure any transactions are accurately reflected in the accounts.

Fund accounting

Depending on the nature of your charitable activities, you could be required to maintain separate funds where the provider has specified that the funds must be used for a specific purpose (restricted funds), or where the trustees have elected to set aside funds for a specific purpose (designated funds). This could be maintained within your accounting software or separately but should be shared with the audit team for their review.

Charitable object alignment

While an auditor’s work is heavily focused on finances, as a charity it’s important that your activities align with your objectives and overarching charitable objects. We suggest that:

1. When starting a new charitable activity (or adjusting current ones) it’s important to review your charitable objects to check the proposed activity aligns to these and helps to meet both your short- and long-term objectives. Any changes to your objects must be approved by trustees as part of an official meeting and the Charity Commission will also need to approve this.
2. For designated funds, the nature and amount of the designation should be recorded as part of official trustee meeting minutes, with the date of the meeting recorded. These official minutes should be stored and available for senior management to access as required. Designated funds can only be reflected in the year they are agreed and can’t be proposed retrospectively.
3. For restricted funds, we recommend tracking the restricted income and expenses as part of the monthly management accounting process so that restricted funds can be easily transferred to the year-end accounts.

Engagement with the audit team

Communication is another key element to a smooth audit. We understand that an audit can be disruptive to your day-to-day work, that’s why it’s important to have early communication with the audit team to organise meetings and fieldwork at a suitable time for you. It also provides an opportunity to inform them of your preferences over the nature and timing of communications.

We recommend ensuring relevant personnel in the finance team are available for queries as often as possible during audit fieldwork and that information requests are prepared promptly.

Involvement from trustees

To ensure those charged with governance have the opportunity to oversee the audit process, perhaps giving trustees the option to attend the audit planning meeting and audit closing meeting would be beneficial, allowing them the chance to raise any concerns or queries surrounding the audit process and statutory accounts. However, we also circulate our audit strategy report to trustees, providing another opportunity for them to input to the audit.

We’d also encourage trustees or key management personnel to draft the trustees’ report as soon as possible after the year-end so that the annual performance is accurately reported, and to allow the audit team sufficient time to review and approve. It’s important to keep the statutory requirements in mind here and ensure the report is fully compliant with the relevant accounting framework and Charities SORP.

How we can help

In conclusion, there are wide ranging factors that contribute to a smooth audit process ranging from the tangible documentation you retain, through to the accuracy of your financial reporting and communication styles with your audit team. The process will run more efficiently if your charity is well prepared.

If you’d like any further information and guidance on the areas discussed, please get in touch with Casidhe Baleri.