10 Ways to Prepare for an External Audit

Image

If you are anticipating an upcoming audit of your childcare organization, then you may be wondering what you need to do to prepare ahead of time. Check out the following guide for ten practical ways you and your staff can get ready for an external audit. Keep reading to learn more. 

Preparation for an External Audit Is Key

Being well-prepared for your upcoming audit is key to reducing stress for your team and ensuring a smooth audit process for everyone involved. 

The following tips are important ways you can prepare your childcare team for an external audit:

  • Give Your Team Plenty of Time 

Give yourself and your childcare team plenty of time to get ready for the audit. Create margin in the weeks leading up to the audit to meet with your employees, divide responsibilities, prepare documentation, and complete audit-specific tasks. By setting aside extra time for preparation, you can minimize stress that comes with leaving everything to the last minute. 

  • Educate and Brief Your Team 

Meet with all team members, especially those who will be directly involved in the audit. Give your staff all relevant information and provide opportunities for them to ask questions ahead of time so everyone is on the same page. Make sure key employees understand their role. 

  • Understand the Audit Scope and Standards

Be clear about the scope of the audit, including what financial statements and documents will be looked at and which fiscal years and transactions will be examined. Also, brush up on basic accounting and auditing standards pertaining to your industry in general and your childcare organization, specifically. For example, preschools who receive $750,000 or more in state or federal funding programs are required to have an annual Yellow Book audit (optional link to What Is a Yellow Book Audit? article).

  • Reconcile Accounts

Make it a priority to reconcile all accounts and make sure your books are accurate and up-to-date before the audit. You want your audit team to be looking at the most current and correct financial information. Read more about how to get caught up on your books if you have fallen behind here

  • Identify Significant Changes

How has your childcare organization’s financial picture changed over the past year? Have you had major changes with income or expenses, staffing and payroll, capital improvements, and the like? Have you introduced new internal control systems or modified processes already in place? You will need to be able to answer these questions for your audit team. 

  • Organize Documentation

Gather all required documentation requested by the audit team ahead of time. Be sure to have a system in place for organizing all documentation related to the audit. Check out this ultimate documentation checklist (link to Yellow Book Audit Preparation Checklist) to help make the process of organizing the necessary documents a little easier. 

  • Review Internal Controls 

Examine all internal controls and processes in order to make sure they are effective. Address any weaknesses within your controls before the audit. You can even run through a mock audit to pick up on any discrepancies ahead of time. 

  • Engage with Your Audit Team 

Establish open communication with your audit team from the time you engage their services. Bring questions and concerns to the engagement meeting, introduce key personnel from your staff who will be involved in the audit, and appoint a liaison from your team as a point of contact for the auditors. Understand your auditors’ timeline and requirements in order to ensure a smooth process for all. 

  • Divide Responsibilities

Divide responsibilities among your team members to make sure each item on the auditors’ timeline is addressed well before the audit begins. Assign internal deadlines ahead of the auditor deadlines to ensure plenty of time to complete necessary tasks and address any issues that arise. Check in with your employees throughout the preparation period.  

  • Learn from Past Errors

Finally, understand that audits are rarely free from bumps along the way, especially if it’s your first audit or there have been significant financial changes to the business over the past year. Take a look at last year’s audit, if you had one, and note the errors found. Decide if and how you can make adjustments going forward into this year’s audit to improve outcomes. 

Following these tips can help you prepare your childcare organization for a successful external audit. 

Honest Buck Accounting provides Yellow Book audits for preschools and childcare organizations. Learn more about our Yellow Book audit services, and contact us to get started with your audit. 


Share this article