The annual audit offers nonprofits an unbiased third-party analysis of their finances. It also assures the public, based on the auditor’s report, that funds are being accounted for correctly.
But many audits are conducted on a routine basis. Auditors often perform the same analysis year after year. Others may focus on areas that have little impact on the overall audit but are easier to see, or things they deem vital, but which may not have a significant impact on the organization.
A data-driven audit, on the other hand, focuses on data from the trial balance and general ledger to conduct a robust risk assessment. From this risk assessment, the auditors then tailor their approach and methodology to identify and assess risk areas. The resulting audit leverages data from both prior years and the current year to present a clear, robust picture of an organization’s financial health and risk areas.
Data-Driven Audits Require the Right Tools
If data-driven audits are so helpful, why aren’t more auditors performing them?
Organizations and auditors need the right tools to perform data-driven audits. This includes financial and accounting software that can provide ready access to current and prior year finances, as well as software to perform complex analysis of the data. This type of analysis cannot be completed easily using a calculator or spreadsheet; auditors who offer data-driven audits typically work with nonprofit software and databases to crunch the numbers they analyze later.
The Benefits of Data-Driven Audits
Data-driven audits provide many benefits. These include:
- Enhances efficiency: Leveraging software and tools to perform data analysis reduces the auditors’ hands-on time with the finances. They can use their time more efficiently to focus on risk identification and assessment.
- Improves outcomes: Risk identification enables nonprofits to take remediation steps for improved outcomes. Auditors can review 100% of the information because the initial analysis is completed using technology.
- Reduces risk: Auditors who do not leverage data-driven audits may miss crucial information because they rely upon sampling techniques rather than a deep-dive into the entire database. Data-driven audits analyze everything, thus reducing the risk of missing something important in the audit.
Supports Remote Audits
Another benefit of using data-driven audits is that most of the technology used to gather and analyze data is cloud-based. Cloud systems enable remote access, meaning that the auditors do not have to spend as many days onsite with you as in the past. They can pull data remotely, analyze it, and focus on findings. This provides a more efficient and cost-effective audit, giving both nonprofits better results and saving auditors time.
With the current accounting employment shortage, in which fewer people seem to be entering the accounting profession, there will likely be a shortage of experienced auditors soon. However, by using technology, auditing firms can increase the amount of work they do, while providing better service and more detailed analysis to nonprofits. This can offset some of the accounting labor shortage.
No Need for a Big IT Department to Benefit from Data
Another benefit to using cloud-based accounting and finance software is the ease with which organizations can add it to their tech stack. Unlike site-based systems, which may require special hardware and personnel to maintain and manage them, cloud-based systems are accessed through the internet. The software provider takes care of maintenance, updates, and security. No special hardware or software is needed to use them either, thus enabling you to continue using the hardware that you have.
Added Value with Few Drawbacks
Data-driven audits add so much value and have few, if any, drawbacks. Not only can they cover more transactions than a traditional audit, but they also help auditors more easily focus on possible risk areas. With the right technology in place, nonprofits can reap the benefits of big data even with limited budgets.
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.