There is no easy way to say this. Conducting a thorough financial audit is a massive headache for most business owners. The process is pretty complicated, long, and often expensive too. Unfortunately, it is a process that is entirely unavoidable. As a business owner, you must keep tabs on your balance sheets and financial reporting to prevent mishaps. A few business owners also conduct such audits to increase shareholder confidence in their operations.
If you are a business owner, here are some good practices that you must follow to get the best out of an upcoming audit.
Tips on Handling Financial Audits
Tip #1: Conduct Periodic Reviews or Compilations
Financial reviews, compilations, and audits are three similar yet fundamentally different practices. Most business owners leave the practice of conducting an audit of their financial records until the very last day because they feel it is too time and resource-consuming. However, this does not need to be the case with every audit. Instead of conducting a full-scale audit, business owners can efficiently run a financial review or a compilation.
Here’s the difference between all three:
- Financial Compilations: This practice basically involves an accountant overlooking the business’s account statements. Here, the accountant does not conduct any additional inquiry or analysis of the accounting records.
- Financial Reviews: Reviews take it a notch higher. While conducting financial reviews, accountants don’t only look at the numbers. Instead, they also perform an extra layer of inquiry and analysis to verify the financial information further.
- Financial Audits: Audits are thorough. They offer the highest level of assurance. Usually, certified accountants or independent audit firms conduct full-scale audits. They are a costly and time-consuming method of verifying financial information and often require an organization-wide collaboration. Risk management, fraud assessment, confirmation, and verification of source documents are all part of the financial audit process.
Conducting a regular review or compilation will help you save time and ensure that your books are in order. They will also help you reduce the overall amount of time taken to conduct a full-scale financial audit when needed.
Tip #2: Conduct External Audits
Internal audits may not always present the right picture of the company’s financial statements. Therefore, it is essential for business owners to get an external third-party opinion regularly. Having an unbiased expert third-party look at your company’s data can help you uncover loopholes that you were previously unaware of.
External audits are often carried out by expert accountants and companies. These experts have an excellent knack for uncovering loopholes and finding incriminating/unstable errors in financial statements. They also have several years of experience collating and managing critical financial data. It would help if you let these auditors bypass internal controls to ensure that your data is clean from a governmental audit point of view.
- Ensure that you partner up with a reliable third-party agency to carry out the external audit correctly. It would help if you plugged all possible data leaks to ensure that critical data never leaves the company.
Tip #3: Actively Look for Areas of Improvement
A thorough auditing process will help you uncover several inefficiencies in the overall financial operations of the organization. Therefore, it is an excellent opportunity for you to cut excess operational fat and create a lean operation. The idea of a wholesome audit process is to find and plug financial leaks and actively look for areas of improvement.
A thorough auditing process can often take up to several weeks. In such a process, the auditor goes through the entire bank account statement, line item by line item. The auditor may ask you and your team several challenging questions. If you do not have correct answers to all these questions, you might need to rethink your financial operations and improve them.
Tip #4: Understand the Different Types of Return Codes (if any)
The most common and irritating error businesses deal with while auditing is returned checks. The business owners (especially those dealing with higher transaction volumes with a large active customer base) often receive bad checks. If you are such a business owner, you need to process these checks correctly during the reconciliation and auditing process.
When you receive such checks, your bank may return these checks with an ACH return code printed on them. By understanding the meaning and types of different return codes, you can quickly identify the next best steps to process them correctly.
Some of the most common return codes that you will see on these checks include:
- RB: Uncollected Funds Hold
- RC: Stop Payment on Item
- RE: Unable to Locate Account or Invalid Account Number, etc.
If you ever find a check or a debit entry on your statement with any such code, you should contact your ACH solution operators as soon as possible. The operators can help you with the next best steps once you give them the correct return reason codes.
There are over 70 return codes on the ACH technology today. However, you will mostly encounter a handful of them regularly. Learn more about the most important ACH-related codes here.
PCI compliance is a strict but non-negotiable practice for modern-day business owners. So, some business owners take auditing as an opportunity to look for areas where they can implement new finance technology. They often end up partnering up with a reliable third-party payments processor. The best of these processors help business owners with the technology to make analytics and reporting for audit processes easier!
Other essential things that a Nacha-preferred reliable payment processor can help you with include:
- Fast processing
- Excellent customer service
- Analytics and reporting
- One-stop destination for all your ACH and credit card processing needs
- Low transfer fee
- Reward program for leads
With the proper support and healthy financial practices, you can save tons of time and money in your auditing process. Ensuring that your financial operations are up to date with the latest regulations and compliance practices will help you smoothly sail through the auditing phase.
Date originally published: 16 December, 2021
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