Article by Liz Maher, CPA, MBA
For many independent schools, preparing for your annual audit can be stressful and time-consuming. By regularly communicating with the school’s audit firm, business officers can maintain this relationship more effectively and increase the likelihood of keeping the school top of mind when it comes to important issues in
the profession.
Before joining NBOA as director, accounting and tax programs, I served as chief finance and resource officer at Woodlands Academy of the Sacred Heart in Lake Forest, Illinois. There, I regularly reached out to our audit firm and asked questions about concepts I was struggling to understand or for suggestions on work we could do throughout the year to help improve our audit process.
The role of the business officer feels very isolated at times. I often felt like I was the only one at the school that spoke the languages of accounting and finance. The audit partnership was important as it made me feel less like I was living on an island.
Woodlands was my first experience working in an independent school, and our audit firm was an integral partner in my transition. In fact, because of this relationship, the auditors would send me recommendations on professional development opportunities. In addition to NBOA, our audit firm was one of our partners that brought the Paycheck Protection Program to our attention.
The role of the business officer feels very isolated at times. I often felt like I was the only one at the school that spoke the languages of accounting and finance. The audit partnership was important as it made me feel less like I was living on an island.
Like your partnership with the head of school and other leadership team members, your partnership with your audit firm should be an opportunity to help lighten that load. Ask questions, ask for advice. More likely than not, you are not your audit firm’s only independent school client. If you are, you might consider engaging a firm that has more experience with independent schools. The following tips can be used by business officers to improve their working relationships with auditors.
Clear Expectations
Although I encourage looking beyond the audit in an auditor partnership, it is still a box that needs to be checked.
Clearly set expectations for yourself, your team and your auditors, and create measures of accountability throughout the process. The method by which accountability is created is not as important as the measurables assigned. Create tangible goals with assigned tasks and due dates, as well as regular check-ins.
Audit managers dream of having a smooth audit just as much as you do. The more they are told in advance, the easier it is to work together in partnership to ensure the smoothest possible audit. Be transparent with your auditors, otherwise you risk getting overcharged — remember they oversee the billable hours. Lack of transparency also damages trust and the partnership you are trying to form.
Stop worrying about what the auditors are going to find, and instead spend the time setting up routines and processes to support the year-end audit.
Prep Time
The close process can help prep for the audit and is another way to ensure a smooth experience.
The close process is the monthly or quarterly practice designed with business office staff to ensure that the general ledger is accurate. It begins with reconciling the balance sheet.
Here are questions to ask about your close process:
- How can changes to the balance sheet reconciliation help prepare for the audit?
- Are reconciliations and supporting documents saved electronically?
- Are they organized and easy to find?
- Is there an electronic review process?
- Is the period in your database after reconciliation locked?
- Are systems being reconciled with each other (student billing to general ledger, donations to general ledger)?
- Does staff know the policies and procedures?
Be mindful of events that might involve extra journal entries in the close process such as unearned revenue, prepaids and accruals. These entries will not look the same at each close and may require other departments to weigh in. Looking at these entries regularly is important. It will help to become familiar with entries that cross periods, and to be on the lookout for them at year-end.
As a last step in the process, it is always good to review revenue and expenses. At the end of the close process, compare the ending balances to the prior month and year, and year-to-date budget, and look for any large variances. You should be able to explain all of them.
In addition to making audit prep part of the normal monthly or quarterly process, start the audit timeline with a conversation with the auditor at least three months in advance.
Audit Timeline
In addition to making audit prep part of the normal monthly or quarterly process, start the audit timeline with a conversation with the auditor at least three months in advance. During this time, set dates for field work and request provided by client (PBC) lists as soon as possible. This is also a great time to discuss any areas of concern or special focus (such as new reporting requirements) with the auditor.
After your initial conversation with the audit firm, touch base with other school departments that are part of the audit process. Communicate the audit date as well as any expectations of information the department needs to produce.
Before year-end, check on the close process. Some schools use May as a soft close for the audit. This is the time to start completing planning documents and sending internal reminders to faculty and staff about the upcoming year-end and audit. This is especially important for employee reimbursements as many employees wait until the end of the year to submit receipts. Having a clear written policy can help to alleviate confusion on timing and the process for receiving reimbursement.
Before field work begins, prepare bank and pledge confirmations and any PBC schedules. It is also important to ask key staff members about their availability during the audit. Auditors will want to speak to a board member, the head of school and other business office staff.
NextGen Audit
The future of the audit process is clear: Virtual is here to stay.
Many firms experienced great efficiencies converting their audit to a virtual platform during the pandemic. Firms are investing in artificial intelligence that will replace mundane audit work and allow auditors to become strategic partners to schools.
Schools should look at future in-person meetings with auditors as relational and opportunities to build on their partnership — a win-win for both sides.
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