SayPro Best practices for preparing for fundraising audits

When preparing for fundraising audits, it’s important to focus on best practices that ensure compliance, financial integrity, and transparency. Here are some key topics to consider for a deeper understanding and effective audit preparation:

1. Fundraising Audits: Purpose and Importance

• Purpose: The goal of a fundraising audit is to assess the accuracy and legality of financial records related to fundraising activities. Auditors review donations, expenditures, and financial statements to ensure proper use of funds and compliance with relevant regulations.
• Key Areas: Ensure donations are tracked correctly, expenditures are supported by appropriate documentation, and all financial activities are consistent with the organization’s stated purposes.

2. Compliance Standards

• Legal and Regulatory Requirements: Fundraising activities are governed by laws at local, state, and federal levels. Familiarize yourself with IRS guidelines (in the U.S.), charitable solicitation laws, and data privacy regulations (GDPR, CCPA).
• IRS Form 990: Nonprofits must file an IRS Form 990 annually, which includes detailed financial information about fundraising activities, expenditures, and compliance with tax-exempt status. Make sure all records are accurate and up to date.
• Donor Acknowledgment: Follow the IRS guidelines for donor acknowledgment to ensure that donors receive the appropriate receipts and that contributions are accurately recorded for tax purposes.

3. Financial Management and Recordkeeping

• Segregation of Funds: Establish clear financial processes to segregate funds raised for specific programs or campaigns, ensuring donors’ intent is respected.
• Tracking and Reporting: Use reliable financial systems to track donations, pledges, grants, and fundraising expenses. Ensure your accounting system allows for easy reporting and reconciliation.
• Internal Controls: Develop strong internal controls to prevent fraud, including separation of duties (e.g., different people handling receipts, deposits, and reconciliations) and regular audits.

4. Transparency and Reporting

• Clear Communication with Stakeholders: Maintain transparency by regularly updating donors, staff, and board members on fundraising progress and outcomes.
• Annual Financial Reports: Prepare comprehensive reports that reflect income, expenses, and allocation of funds. These should be easily accessible to the public and stakeholders to demonstrate accountability.
• Transparency in Fund Allocation: Ensure that a significant portion of funds raised is directed toward programmatic activities rather than administrative costs, as this builds donor confidence.

5. Best Practices for Preparing for Fundraising Audits

• Document Everything: Maintain detailed records of all donations, grants, fundraising events, and related expenses. This includes donor information, contracts, receipts, and correspondence.
• Conduct Internal Audits: Before the external audit, conduct internal reviews to spot any inconsistencies or issues that need to be addressed.
• Train Staff and Volunteers: Ensure staff and volunteers understand the importance of accurate documentation and following financial protocols. Training should include compliance with legal standards and organizational policies.
• Engage a Qualified Auditor: Hire a qualified, experienced auditor who is familiar with nonprofit fundraising regulations and can provide insightful feedback.
• Prepare Financial Statements: Ensure that financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP). Have them reviewed by the finance committee or board before the audit.
• Plan for the Audit Process: Set clear timelines and assign responsibility for collecting documents, preparing financial statements, and ensuring compliance with regulatory standards. This helps minimize disruption to day-to-day activities.

6. Use of Technology

• Financial Software: Invest in financial management software that can handle tracking of donations, expenses, and donor management. Popular tools include QuickBooks for Nonprofits, Bloomerang, or DonorPerfect.
• Audit Trail: Ensure your systems can generate an audit trail for every transaction, including who authorized it and when. This supports transparency and accountability.

7. Fundraising Event Compliance

• Event Documentation: For fundraising events, ensure accurate records of event income and expenses, including ticket sales, sponsorships, and donations. Keep receipts for all event-related purchases.
• Compliance with Local Laws: Fundraising events may be subject to local laws, such as permit requirements or restrictions on gambling or raffles. Make sure these are in place before hosting events.

8. Post-Audit Follow-Up

• Address Findings: After the audit, address any issues raised by the auditors. This could involve improving documentation processes, adjusting financial practices, or addressing any discrepancies.
• Implement Recommendations: Use the audit findings as an opportunity to improve operations. If auditors recommend changes in internal controls or policies, implement them as part of your continuous improvement process.
• Communicate Results: Share the audit results with stakeholders, including board members, donors, and the public, to demonstrate your commitment to transparency.

By adhering to these best practices, organizations can ensure they are well-prepared for fundraising audits, maintain compliance with regulatory standards, and foster trust with donors and stakeholders.