Sweta on the audit

- [Voiceover] I'm here with Sweta to talk about our audit. So, what is an audit? - So an audit is where a third party comes in and looks at our financials. They look at our processes and, basically, they render an opinion on our financial statements and how good our internal controls are to get to those numbers. - What are internal controls? - So, internal controls are-- Think of this as having checks and balances. So, for example, you're getting a vendor to do some work and somebody has to decide whether we should get that vendor in or not and then, somebody else says, "Okay, we have to pay this vendor now." So, we have different people who have authority to do different things and this become very important as an organization grows in size to prevent, essentially, prevent fraud. I mean, that's why internal controls are there. We trust people to do the right things, but as organization grows, we need to have systems and processes, so that we can, basically, trust but verify. - And why do we need to get a third party to do it? Why can't--Why don't people just take my word for it? (Interviewer laughs) - I wish it were that easy! For one, it is legally required. According to the California Nonprofit Integrity Act, all nonprofits, with growth revenues more than 2 million, are required to have an independent audit. So, even if you didn't want to, with our size of organization, we would need it. - And why do they require it, though? - I think, ultimately, it's about providing transparency to our funders and to the general public because we are a nonprofit organization. Similarly, public companies, if you go to the for profit world, are required to put out audited financial results. - And what is the audit process like? These people-- how long does it normally take? How long did it take before, a couple of years ago? How long did this last process take? - Sure. So, the audit process-- for me also, this was the first time actually actively going through an audit process. It is a fairly involved process where the auditors will assign a team and they come on site. They spend a lot of time here, essentially, looking through our books. Which, our books, means we use our accounting software which is QuickBooks Online and they will spend a lot of time looking through our entries in QuickBooks and they go back and ask for documentation. So, whether it's relating to revenue, then they'll go back and ask for documentations around funding letters, and such, or on expenses. They will ask, "Hey, show us your payroll files and things." So, they dig deep into that. It all starts with a request for information. They will send us what they are looking for. So, we'll send all that information to them and then, they'll come on site and do some more work here, working closely with our team. So, in the past when we had a finance team of 1 person, the audit would take a long time and, like a public company, where you have to report quarterly earnings and you have to get audit done every quarter, here, we have flexibility, right? Last year, I believe the audit was done in August, so it was almost 9 months after-- or 8 months after we finished the fiscal year and this year we did the audit by March 31st. So we are staying with-- okay, we are able to report out our results within a quarter of our closing months. - So 3 times faster than before which is pretty incredible and what was the-- Do they give a ruling for the audit? - Yeah, our audit, the one sentence qualification was-- they basically said it's an unmodified, unqualified audit. Which is the highest rating that they can give an audit. So, essentially, in terms of what we're doing, it's all-- the processes are in place. They have a few places where they make recommendations-- - I would hate to be in a relationship with an auditor. - Yeah, exactly! (They laugh) - "I unqualified, unmodified, don't not like you." - Right, exactly. (Interviewer laughs) - That's the highest form of praise! - A lot of scrutiny and everything you do-- I mean, it's basically that and you're opening it up and they are coming in saying, "Do you pass muster on these?" - But we got the highest rating. Now were there any things that they said we could do better and how do they communicate that? - Yeah, sure. For us, the learning from the audit processes, these auditors are also looking at many other organizations. So, it is a chance for them to bring some best practices in. In the spirit of that, there've been areas they've identified in the past, which we've fixed, and then, this year as well, there are a couple areas in which we can do a better job. As an example, as we get our funding letters out to our donors for us to be very explicit and say, "Thank you for your gift for a million dollars of unrestricted funds or restricted to a certain area." So, there is no miscommunication. It's all down in paper, they want the paper trail. - So in the past someone verbally tells me or you or Maneera, "Hey, I'd like to give a million dollars and I want it to be unrestricted." In the past, we would just send them a "Thank you" letter. - Exactly - But that "Thank you" letter, it's more than just a "Thank you" letter, it's part of the paper trail. - Exactly; after the intent of the gift. - Exactly, so now we say, "Thank you for your unrestricted gift" and that's a double-check to make sure it truly is unrestricted or it is restricted in some way. - Right, exactly, and for us, we took that in the spirit of there are things that we can do better and let's learn from them also 'cause they have the benefit of seeing a lot of organizations do this, right? - Yeah and so, this seems like a big win. We actually have a finance organization now. - [Sweta] It's exciting. - You were able to take the audit time from-- by a factor of 3. Which, it's nice just in terms of time, but it's also a big-- it should give even more confidence in people who support us. - Absolutely, because when funders are asking for report outs, they are typically asking for audited financials. - For us to be able to show that and now we can give them 2015 audited financials, for us, it's great. An audit is one of those things, right? I mean, you do an awesome job and then, there is no talk about it and that's exactly what you want because that's what audit is about, right? It's something that you've done and it just answers the questions without people asking those questions. - Yeah and who is involved in the audit? On our side? - [Sweta] On our side, Tina Sachs, our controller, was leading the audit process and then, Nick and Angela on the team. It was a team effort, so kudos to the team for getting that done in a very timely, efficient manner. - Thank you for doing it. - [Sweta] Yeah, thank you.