Dress rehearsals are critical in the theater world, a time for actors and crew to make sure everything will run smoothly on opening night. The same might be said of audits, which are costly, both in time and money.
In addition, if problems are uncovered, there can be serious implications for a company – whether the audit is by a CPA firm, the Internal Revenue Service, a worker’s compensation insurance carrier or the state department of labor.
In some cases, CPA firms provide a pre-audit checklist, which is a document tailored to make the process of an external financial audit run more smoothly. This checklist details the documents and files that the company will need to provide to the auditors. By taking a more active role, a company can streamline the process, reduce costs and catch errors in advance.
One of the first areas to tackle regarding any audit is file organization and completeness. In a busy operation, it’s easy to allow paperwork to become overwhelming and get out of hand. The same can be said of electronic files.
Especially if you are hiring a CPA firm to audit your company, you need to have in order everything the auditors might need to review. Time they spend poring over incomplete and messy files will likely be tacked onto your bill.
When it comes to state or federal agencies, disorganization is a red flag that may cause them to dig more deeply. The reasoning is that sloppiness leads to errors – not an impression you want to make.
If your company receives money through federal contracts or subcontracts or you’ve accessed state or federal employee assistance programs, you need to make sure you are in compliance with all rules and regulations. When spending state or federal funds, you must ensure that the expenditures are allowable and are documented properly. For federal funds, the OMB Circular is your guide and must be followed to the letter.
Another key area is payroll system compliance. State and federal labor laws are very strict concerning how and when wages are paid. Overtime rules may apply.
Classification of workers regarding worker’s compensation insurance can also trip up employers. The wrong classification can be costly since rates are based on employee tasks.
It isn’t enough to have policies that reflect current law and the way the company operates regarding benefits, raises and time off. These policies must be applied consistently and thoroughly. Policies represent a binding contract between you and your employees and an assurance that you are fully complying with labor laws.
Conducting your own pre-audit takes time and planning. Identify the area that you will be reviewing and ensure that the staff involved have access to relevant rules and procedures.
The goal is to find mistakes and uncover weak areas where policies and procedures aren’t consistently followed. When it comes to disbursements and payroll, make sure there is separation of duties to reduce the possibility of misappropriation of funds.
Undergoing an audit can be an onerous and stressful process. By being proactive and regarding the audit as an opportunity to improve operations and accuracy, you can align your company for future success. It is also less costly to self-identify and correct errors, whether dealing with accountants or government agency auditors.