What to expect in a remote audit 

During the early phase of the COVID-19 pandemic, audit firms and their clients scrambled to adapt to performing remote audits. Although the pandemic’s grip has loosened, some firms are continuing to conduct remote audits — and they could stick with this approach for the long term. Here’s what you need to know to make the process as efficient and painless as possible.

Initial meeting is critical 

As in the past, your relevant staff will meet with the audit team to discuss, among other things, significant occurrences during the audit period and any challenges facing your organization. This is also when expectations and timelines should be set. For example, will your employees involved in the audit be working remotely or in the office? When do they need to be available? What kind of lead times are required? What are the due dates for schedules and other audit work papers? 

To reduce delays, you also should establish your communication preferences, including the frequency of video conferences and the means and timing of when the auditors should relay open items and other requests. 

Assumptions may require revision

COVID-19 and the rocky economy of the past few years have likely disrupted many aspects of your operations. With that in mind, don’t be surprised if your auditors approach the audit almost like the audit of a new client.

In particular, you might find that assumptions that previously garnered little scrutiny — because they might have been reasonable for years — get more attention. Auditors must determine whether historical assumptions are still valid in light of recent events and conditions. 

Internal control issues may have changed

When organizations moved to remote work in 2020, some were better prepared than others. Those that hadn’t yet shifted to a primarily digitized environment (from documentation to invoice approval and bill payment) should have adopted new controls as they made the shift. But the rushed nature of the transition could have left some gaps. This may be particularly true if you were short-handed and required employees to wear multiple hats.

Requisite testing of these controls could prove more difficult in a remote environment. You may need to consult with your auditors to determine how best to test the design and implementation of your controls, because it might not be possible to observe them in real time. Will it suffice to have an employee walk the auditors through over a video feed? Or will the auditors require live feeds so they can get a truer picture of how things are done, rather than a more selective view presented by an employee?

Fraud is a stronger focus

The unusual circumstances of the past few years have created a variety of new fraud risks. For example, employees who were facing big bills or felt like they were doing more than their fair share of work may have had an easier time rationalizing embezzlement. And gaps in internal controls might have provided greater opportunities for those inclined to perpetrate fraud.

For these reasons, your auditors may pay more attention than they traditionally have to changes in key employees, third parties who have access to your systems and other points of potential vulnerability.

Generalizations won’t cut it

The effects of the pandemic on nonprofits’ financials have been far-reaching and well documented. They include significant declines in revenue, higher expenses, below-average returns on investments and budget deficits. Internally, you and your staff likely understand such variances as simply “due to COVID-19.”

That likely won’t satisfy your auditors, though. They’ll quantify variances and expect detailed explanations from you, with supporting documentation. The sooner you prepare these, the quicker the audit will go.

Longer but more structured

Change is always difficult, especially in something as inherently fraught as your audit. But remote audits, with their more streamlined structure, ultimately can make the process less time-consuming and stressful for your staff. In fact, you may find you prefer remote audits yourself.

Sidebar: Leverage technology for a better audit experience

Many nonprofits, particularly those with smaller budgets, tend to lag behind the curve when it comes to technology. But making technological investments can lead to more efficient operations and less burdensome audits, remote or otherwise.

Remote audits will prove very difficult for organizations that aren’t equipped with high-quality hardware and software for tasks like video conferencing, screen sharing, file sharing and document scanning. Email alone won’t cut it. Neither the auditor nor your staff will enjoy dealing with prolonged strings of emails when questions need to be answered and documentation provided.

It's also worth exploring migrating to a cloud-based general ledger. This can facilitate easy access for both remote employees and auditors. And adopting automated accounts payable can reduce human error, strengthen internal controls and cut costs.