Create Your Us Invoice Template for NPOs Effortlessly

Us invoice template for NPOs

[Music] welcome back to another episode of counting on jason this is the video series that jason and company has created so that we can help nonprofits navigate in a better way so they can achieve their mission vision and values we're really excited today to talk about effective non-profit audit preparation welcome back jackie that's kind of a long title yes it is and thank you for the welcome i'm happy to be here again well we're really excited just to remind you um if you haven't been with us before jackie mclaughlin is a client services manager with chasen and company she's been one of our star experts that we've had on counting counting on jason um because we pepper her with a lot of questions and she takes them in stride and really helps demystify a lot of things and so it's just been a pleasure to welcome you back so i've got to start with this big question that kind of frames up our conversation today why do non-profits need audits great question some don't there's typically one of maybe three reasons a non-profit will need an audit so first and foremost is if they get any government funding that government funder may require an audit and sometimes that depends on the threshold of the funding that they receive it should be any in any grant or contractual funding paperwork that a nonprofit signs so that's probably the biggest reasons secondarily the majority of the states in the union require non-profits to get a charitable solicitation license and that allows them legally to go out and raise money each state has a different threshold of revenue for when an organization needs an audit again if they want a charitable solicitation license now you have to have that to raise money so when you go to get your charitable solicitation license in whatever state you're in you need to look at that state's rules and say at what point do i need an audit and usually that's dictated by revenues okay so let's talk about that csl requirement and that's just a little bit of a diversionary topic before we go further but my thought immediately when you said that was look at all of us in the nonprofit sector that are now taking donations from folks out of state because of digital the digital portals and the ease with with which we can get these donors to interface with us digitally that's a pretty big deal and maybe that's a topic for another time but that needs to be filtered in through all this is that what you're saying it may be um and again i would refer people back to their states because each state is different we do have a client in georgia and they raise funds primarily through gofundme and social media their csl is only in the state of georgia but again beyond georgia that's something you need to go to each state's um csl website and read the requirements wow okay well that's a big heads up and we might have to revisit this could be a very good topic it's a big topic now the next thing that you have kind of illuminated for us is that there's a difference between an audit and a review and sometimes we will hear that there's the audit and there's a review they're not the same thing right they're not and i'm excited because that's a great segue from what we were just talking about what i forgot to mention is that each state's requirements when you get a csl depend vary depending on the revenue which i talked about that but some states may say okay if your revenue is over a million dollars you need an audit if your revenue is over 200 000 you need a review so it's a great segue into talking about the difference between those two levels of service both have to be performed by an independent cpa and i stress the word independent because if you have a cpa firm doing your transactional day-to-day payables receivables activity they cannot do an audit or review for you no way it r it really has to be a whole nother organ see a whole other firm correct they have to be completely independent of you to be able to do an audit or a review now there's other levels of service that they can offer that they don't need to be independent but for an auditor review they need to be independent oh my gosh so that's involving like a whole nother level to this this is why this is such a good conversation to have because it's um it's a lot more in-depth than i think most of us realize it is and if you do have a cpa firm doing your transactional things and you ask them to do an audit or review they will typically say no because they're not independent but then they can usually refer you to somebody they know who can do it for you but an audit is the most intensive thing that you can get done as an organization so an auditor is not just looking at your overall financial statements but they are drilling into the details of those financials they are saying hey you said you spent ten thousand dollars on office supplies i'm going to pick some random off invoices that you coded to office pipes and i want you to show me the invoices that support this they get into that level of detail and they determine where their detail is going to be based on based on their overall risk of the organization one thing i want to point out because i think it's a mistake that people think auditors are not in the business to detect fraud stealing or misappropriation they are not in the business to do that okay that's interesting because i kind of would have thought that that went hand in hand with this whole thing no it can and if they find it they have an obligation to report it but they may not always find it and there is an expectation on odd oh we're getting audited if anything funny is going on we'll find it no there are two um situations that will if they're existing will never allow an auditor to find fraud and one of those situations is collusion if you have more than one person colluding to steal money or do whatever they shouldn't be doing the auditors aren't going to find it because people are covering up each other's tracks the other thing is called management override of controls so that's when you have a president or executive director who hands the organization their ten thousand dollar personal amex bill and says pay it well anybody down that chain of command that's their boss they're gonna pay it so if an ed were to do that that's called management override of controls and an auditor typically will not find fraud committed that way unless there's a whistleblower so the 990 which is the tax return for a nonprofit asks each non-profit if they have a whistleblower policy you're not required to do it but it's a darn good idea and if you have a whistleblower policy then an auditor may catch something because an employee may come forward anonymously to the auditor and say hey i don't wanna i don't want anybody to know it's me but this is what's going on you know um because you brought that up let me ask you this sidebar question if you will um if if you are an organization that doesn't have a whistleblower policy is that something that your accounting provider can help you with or give you that the template or something that's going to help you get the right thing in order yes absolutely yeah because i'm not hearing about this enough i know that you brought this up in another conversation that we had uh with counting on chasing but as i've been thinking about it you know this isn't really something that i've been seeing and we need we do need to make sure that we amplify that message to our viewers let's switch gears a little bit and and talk about this pbc prepared by client list you mentioned to me that this topic is one of the most popular topics on the jason and company.com blog it is but before i get into the pvc let me quickly go back to the difference between an audit and a review because your pbc list will be different depending on whether you're having an audit or a review so it all kind of ties in together so as i mentioned an audit's very detailed where they'll the auditor will want to go in and see invoice support for things that you pay they for money that you've gotten through the door they may want to see contracts associated with that or checks that came in or wire transfers or whatever they'll get into the detail in a review it's far less detail a review is two things inquiry and analytics so what that means is they'll ask management a lot of questions and then the other thing they'll do is they'll look at the data in relationship to each other so they'll say hmm we see here that contributions went way up doubled since last year but your cash hasn't moved what happened so something like that is called an analytic and a review is almost entirely just inquiry and analytics so it's much less assurance than an audit so an auto will actually say these statements are materially correct if you get a clean audit it says that a review says hey we didn't find anything to lead us to believe that they're not correct so there's a big difference in the messaging between an audit and a review which is directly related to the level of service being provided a review is scaled down service so you say let me interrupt you really quickly would you say that the review is more in a narrative format where it's going to be more or it's it's still going to be a ledger kind of presentation well the the auditors on an audit give an opinion on a review they give a report it's still very templated okay uh boilerplate data that the auditors will give you it's their behind the scenes being narrative versus like excel spreadsheets and um to that point in the behind the scenes a review will have far more narrative in their work papers but that's not something that stakeholders see or their work papers anyway all right thank you for letting me interrupt you because i sure when i popped into my into my head and i'm like i better clarify this okay yeah so the pbc list is very different depending on whether you're having an audit or whether you're having a review so if you get an audit a pvc listing is going to be far more extensive and they're going to want to see your trial balance your internally produced financial statements any contracts you've entered into during the year any large contribution agreements any grant agreements they're going to want to see all the paperwork for that so what we do at chase and company when we have a client who's we know is going to get audited every year as they sign new contracts we grab a copy of them and we have a little folder audit folder and we just drop it in there so that at the end of the year we're not scrambling to go oh my gosh we have to get all these contracts we get them along the way which is best practices and less headaches yeah that's a great great great tip because then you're just automatically it's there yeah and you can you know the electronic communication and work now auditors tend to have a portal and you can just take that whole folder and dump it onto their portal and it makes your life a lot easier so they will want to see anything contractually signed now unless it's really insignificant if you're signing a 10 a month utility agreement no one cares about that but the big money they'll want to see and they care about once they ask for some of those bigger things and the pbc list can be quite extensive larger nonprofits may have 120 items on their pvc list it can be big and that's just the beginning you give them that in advance and then they start doing their work and then they say hey we see this office supply account that's 200 000 we're going to pick some samples and we want to see the invoices to back up this office supply where they'll look at your payroll hey we want to see all your 941s which are your quarterly payroll reports to the irs and we want to make sure that what you have on your financial statement can reconcile to the 940 ones that were filed on your behalf so just because you finished this pvc list doesn't mean it's over it's only just begun at that point wow so i can see why this is such a hot topic um and that that folks are researching this through the case the treason and company uh website it's really an interesting thing that um i would imagine most people unless they're part of that accounting and finance team don't realize um you know you mentioned something to me before i asked my next question and that was it's really important to make sure that you have all hands on deck during this time what does that mean well so the the top level management really think needs to think about approving vacations around the time of really the fiscal year end so a lot of nonprofits have june 30 fiscal year ends and people want to start taking vacation but here's the thing i mean your accounting department is really responsible for getting ready for an audit however if you've got budget managers who have vendor invoices that are sitting on their desks and they're just not approving them and getting them into accounting that's going to mess up your audit prep work so top management needs to be very vocal with budget managers with the advancement or fundraising departments they need to be very vocal and give these people strict timelines to submit all this data to the accounting department and so it can be inconvenient when budget managers fundraising advancement are suddenly on vacation when accounting needs them the most and similarly if you have a june 30 year end auditors will come anywhere between august september october whenever schedules match it's also not a great idea to approve vacation time for your accountants in september or october when your audit's gonna be underway you know that that that's an interesting point so let me get back to that there is kind of like an audit season if you will that that's when that's going to be um occurring pretty much right after the year end closes right i mean so that you're you're not doing this like you know six or eight months down the road you're really trying to keep it as close as you can to the year end you are and typically auditors won't come on a june 30 to let's say september because come july the accounting department for the nonprofit is steamrolling into tying down those june 30 numbers and really preparing for that audit so they're going to need a couple of months to real to adequately prepare for the audit so that would mean the soonest an auditor is really going to come as maybe around labor day to give the team adequate time to prepare and then at that point it just becomes when the audit firm has room in their schedule yeah okay that helped me out because i don't think i realized that another piece of this that i want to chat with you about is um what auditors are you know looking for and determining i mean you had a really interesting thing of helping us to understand how they're going to go about this and the detail that they need and how that interface is going to work with a team but you have four major things that are if you will and correct me if i'm using the wrong vocabulary but almost like what the conclusion is and you start by saying are using that those two words materially correct so what does materially correct even mean let's start there okay so all good texts people use the answer it depends and i know nonprofits don't have to do taxes but it depends it's a great answer the word materially will be defined differently for every single nonprofit so if you're a non-profit whose revenue is a hundred thousand dollars a year five thousand dollars maybe may be materially for you if you're a non-profit who pulls in 20 million in revenue a year five thousand dollars is not going to be material so the accountants the cpas like to use the phrase um at what dollar level would it sway a stakeholder's judgment so if you and i'm kind of paraphrasing that but if you apply that to my example five thousand dollars on 20 million in revenue is not going to sway a stakeholder's judgment or a grantor's judgment or a donor's judgment five thousand dollar error on a hundred thousand in revenue that may sway a grantor donor stakeholders judgment yeah i love that you said this because i didn't um i never put it in that context and you're absolutely right it depends absolutely so then you have financials are materially correct that's the number one thing that's one at one option well let me stop you there auditors are very specific that's called a clean opinion and again all the the words i've given you are very paraphrased they're not accounting speak so that's called a clean opinion and auditors say the word materially because an audit is based on sampling and testing so they can't say hey we know everything on here is totally correct they can't say that because they don't look at everything they look at a sample and then they extrapolate out so that's why they use the word materially interesting okay now so that is clean and i would say if there's a pyramid that's the top that's the best yay team yes move on to all the other things that we have to do as non-profits yes now the next level going down on that triangle if you would financials are materially correct except for one thing correct and it may be one or more but generally it's one so you see this a lot in the for-profit world and i'll give you a for-profit example because it's easy to understand so in the for-profit world there's different methods of depreciating your assets there's your book method and then there's your tax method and so many for-profit companies will record depreciation on their books using the tax method and that's just what they want to do they don't want to convert for book purposes so in that case an auditor may issue an opinion that says everything looks materially correct and is cons compliant with gaap generally accepted accounting principles except for depreciation is done on the tax basis not in ance with generally accepted accounting principles and they'll only do that except for when that disagreement is immaterial i mean if it's big numbers they they won't do that interesting and that's that's when an organization digs their heels in and they say yeah we hear what you're saying but we don't want to do book depreciation we want to do tax depreciation interesting okay now as we're going down this like imaginary pyramid and things are getting heavier at the bottom number three is for financials are not materially correct and that's gotta be a pretty big red flag right it's a huge red flag no one wants to see that because the value of an audit is really having outside people look at your books and say what management is doing is consistent with gaap consistent with the principles of accounting and can be relied upon so if you get an opinion that says your numbers aren't materially correct that's a deal breaker typically lenders don't like that grantors don't like that and usually most management will fix the problem so that they don't run into that opinion and so that was going to lead me to number four records were not sufficient to allow an audit i mean the reality is you that's catastrophic on a whole nother level you're you're probably dealing with an organization that has a lot of other problems um because they have it sounds to me and correct me if i'm wrong it sounds to me like the like management hasn't even tried to interface with their accountants to even get the information needed to move forward well management's really dropped the ball on getting supporting paperwork so that's auditors call that disclaiming an opinion so they're not saying it's materially correct they're not saying it's not materially correct they're saying we don't know because we couldn't get the records to determine if this is materially correct or not materially correct wow and so pretty scary yeah that's that's not good either and it also can be a situation where an organization does have a lot of records but they don't have all of them so you know maybe they have records for their expenses but they they don't have any records for their revenue just as a gross generalization and revenue happens to be one of the riskiest things auditors audit particularly in the nonprofit world when you have restricted revenue or sometimes that revenue needs to be deferred so that's very risky and if nonprofit doesn't have the revenue records to give to an auditor they may choose to say we don't have enough data to say yeah it's materially correct no it's not materially correct wow amazing i keep going back to what you said right when we started this this conversation uh with uh you and that is that magical folder that sits on your computer where you shuffle copies of things um because that i just can see this as being um a mindset and an action of habit so that you are collecting this information um which is pretty powerful so we've talked about this major concept audit bursary versus review process um the third party you know piece of this the timing where does all this go i mean this is a lot of work a lot of time a lot of cost yes a lot of stress yes i mean jiminy crickets you're telling folks i can't go on vacation so what happens where does this go it depends so if you get government funding federal funding for example you do have to upload your audit to um a federal database so that and again it's over certain thresholds of federal funding that you have to do this so that's the most obvious place that it goes if you have um debt with lenders whether it be a line of credit or just a big loan your lender may require an annual audit recently one of our clients um who has a processor for credit cards which most people do the processor wanted a copy of their audit which is a new one for me i've never seen that one before yeah and then as a as i said granters as well may require an audit so there are some requirements that would be distributed to if you have a csl you're going to have to upload that to the charitable solicitation license website possibly in your state again read your state's rules so it goes to all of those places aside from that typically it will definitely go to the board they need to review it and an interesting note the auditors are required to have a private meeting with the board of directors or at least the audit committee or finance committee in which the executive director is not present so that the auditors can have the opportunity to tell the board we found these problems we got pushed back the ed wasn't cooperative whatever the case may be wow okay so that's an executive session issue um and that's fascinating because i'm going through my mind here you know ticking through um i don't know if i have been a part of a board that has actually done that it always seems like the executive director is in on that so i'm gonna have to think back about that but that's fascinating and yeah that's another control that makes total sense yeah i don't know if we're already if we're always doing that though well if you're on an executive committee and your board that you're on has an audit committee or finance committee they're probably doing that hopefully they are um and that's an opportunity for the auditors to really tell the board anything they should know now thankfully i can happily tell you i've never been a part of one of those where the auditors um haven't said good things about the exact you know we had no problems everything was great we agreed on they were they gave us what we needed typically that's how it goes but it is there in case you have an executive director who's not so accommodating maybe trying to hide some things that mechanism is there yeah well it's an important thing and this is part of why we're doing it i think one of the things that's been so interesting to me and as we finish up our time with you today jackie you've really illuminated the the reality of an audit in a review it's doing a lot more than maybe we even realize um and i'd love for you to kind of finish up this conversation with us today about talking about that impact i mean i'm going to use the word impact because of all the different people that ultimately will benefit from this and if you could kind of give us some of your thoughts on that so in a way it's it's kind of like when you're a parent and you go by a car seat and your car seat is one of the most important things you buy as a parent because you want to ensure the safety of your child and you look for a car seat that has some stamp of approval on it no i haven't needed a car seat in years and years so i don't know what that stamp of approval is but there are certifications or something on car seats that parents look for an audit does for financial statements what that certifying body does for car seats and the impact is it makes donors grantors state or federal agencies breathe a sigh of relief okay some outside objective third party who's got no reason to care one way or another came in here looked at this financial data and said yes it looks materially correct that then gives donors grantors lenders more comfort to say okay i can feel good about giving my contribution to this organization because i know that they're using it effectively and i know this because i've looked at their financials and i can trust their financials because they've been audited interesting yeah and i i think this is a a magical way to think about it um because it also if you do have this mindset it seems like you and your team can be a lot more invested and not look at this as as penance or drudgery but to say look this is ultimately if we use this information right this is only going to help us grow and and create you know um stronger impact which is what we're all about so i'm thrilled you brought that up because no one likes auditors and by the way i spent seven years as an auditor so i've been on that side of it as well and the reason no one likes auditors is because it does add to their workload preparing for an audit sure but i you know having spent seven years as an auditor i'll tell you auditors are nice people they're not there to argue with you they're not there to make you look bad they're they're not there for any of those awful reasons now where nonprofits get into workload problems and and i love this point back in 1984 a non-profit used to do record contributions in this certain way abcd and that's how they proved it to the auditors well the auditors don't know any difference so they come back the next year they say hey we want to see your contributions here's how you gave it to us last year and that and so the nonprofits go oh okay i gotta give it to them an exact same way i gave it to them last year so now we're in 2022 and technology's changed everything's changed they're still giving it to the auditors the way they did in 1984 because they think that's how the auditors want it no one ever very few people stop and say to the auditors what are you trying to prove by asking me for this template or this format what are you trying to get at and then the others will say oh i'm trying to get it to make sure contributions are recorded correctly well i can give it to you this way this other way that will take me an hour to give you instead of a month to give you do you think that this new method of giving it to you will work for you and typically they'll say yeah and if it saves you time it saves me time right well that's just it it's it's it's the whole journey of the process and the stewardship of that process yes fascinating so that's probably my best tip of the day is when they're asking you to prepare these voluminous laborious schedules talk to them and see if the two of you can come up with an easier alternative way to give them the same information i love it well i don't know you've given us a lot of tips today that have been pretty pretty right on and given us a way to reframe this discussion of how we prepare for an audit jackie mclaughlin cpa client services manager uh chasing and company you are just a marvel i'm really always so interested in your take on things and how you can simplify something that a lot of times can appear to be daunting or even frightening and you kind of push it all together for us to make it a lot more achievable and at the end of the day if we can't navigate some of these best practices we can't achieve our mission vision and values as nonprofits so we've got to have these these conversations we have to be you know more educated about this so thank you so much it takes finances to change the world whether people like it or not it takes money and you have to have good stewardship of your money and accountants help you do that i love that i love that jackie that is a great way to end another episode of counting on chasing you know we're really here with a lot of information you can go back to counting on chasen.com or to chasenincompany.com with so much information so much content it's being updated and added to and it will really help you uh to navigate the these processes that all non-profits need to be taking a look at again i'm julia patrick ceo of the american non-profit academy i've been delighted to have you with us today on another episode of counting with jason thanks so much [Music] you