The annual audit season can be a stressful time for many organizations. However, with proper
planning and preparation, it can be a smooth and even beneficial experience. In this blog post,
we’ll explore key strategies to help you navigate the audit season with confidence.

Key Strategies for a Successful Audit

1. Maintain a Positive Mindset:
   ○ Embrace the Opportunity: View the audit as a chance to improve your organization's
   processes and controls.
   ○ Manage Stress: Implement stress-management techniques, such as mindfulness and
   exercise.
   ○ Build Strong Relationships: Foster positive relationships with your audit team to
   facilitate open communication.
2. Proactive Preparation:
   ○ Anticipate Questions: Consider the types of questions the auditor may ask and prepare
   thorough responses.
   ○ Organize Your Records: Ensure that all relevant documents are readily accessible and
   well-organized.
   ○ Stay Updated: Keep abreast of industry regulations and best practices.
3.  Effective Communication:
   ○ Clear and Timely Communication: Respond to requests promptly and provide clear
   and concise information.
   ○ Open Dialogue: Maintain open communication with your audit team to address any
   concerns or questions.
4. Leverage Past Audits:
   ○ Learn from Mistakes: Analyze previous audit reports to identify areas for improvement.
   ○ Celebrate Successes: Recognize and reward positive performance to boost team
   morale.
5. Stay Informed:
   ○ Monitor Regulatory Changes: Keep up-to-date with the latest regulations and industry
   standards.
   ○ Proactive Approach: Stay ahead of potential issues by proactively addressing them.
6. Understanding the Auditor's Perspective:
   ○ Empathy: Try to understand the auditor's perspective. They are often under pressure to
   meet deadlines and may be dealing with multiple clients.
   ○ Be Patient: Be patient with your auditor, especially during peak times.
   ○ Be Flexible: Be willing to accommodate requests from your auditor, even if they are
   unexpected.

Specific Actions to Take Now:

● IPEDs: 150% graduation rate report and campus security report.
● Campus Security Report: Entire report with the 2023, 2022, and 2021 crime statistics. We

will need the letter sent to the police and their response. Then the notification to your current
students, potential students, and staff of the updated report. Three ways this can happen.
○ Email with the report
○ Signed attendance sheet for the meeting where the report is discussed
○ Notification sent with the required elements

● Expired License or Accreditation: Before you hang it on the wall or put it in a book, send us
a copy.
● Review Internal Controls: Assess your internal controls to ensure they are effective and up-
to-date.
● Train Your Team: Provide training to your staff on audit procedures, documentation, and
compliance requirements.
● Create an Audit Checklist: Develop a detailed checklist to track progress and ensure all
tasks are completed. Remember that we sent you the list of items we are going to request
● Student Files: Don’t wait until you receive the file selection to convert the student file to PDF.
Start the process today. By being proactive now with the files, you reduce the risk of missing
items and receiving a finding. It is easier to document a student who is in school compared to
one who has already left.

By following these strategies and taking proactive steps, you can significantly reduce stress and
increase the likelihood of a successful audit. Remember, a well-prepared organization is more
likely to navigate the audit process with ease and confidence.

***Please make sure that you have scheduled your file review date. The sooner you talk to
the owner the more availability they will have. Time slots go from January to April. Our goal is
to send you the selection on a Monday or Tuesday and then have the files done that week.
Slots are given on a first come first serve basis so don’t delay and get the date that will work
best for you. Please send to your auditor three different weeks that will work for you. They will
try to accommodate you if possible.

Thank you for all that you do.

Ben Sanders
Lightheart Sanders and Associates
Compliance Manager

The post Navigating Audit Season: A Proactive Approach first appeared on Lightheart, Sanders and Associates.

That’s right! Your audit should not be something put in a desk drawer and forgotten about! Before you put it away, you should review with your team exactly what your audit is telling you. Further, you should discuss with your auditor what problems arose during the audit.

In this blog, we will cover several areas where many schools use their audits to improve their school. We will discuss both compliance and financial aspects.

Financial Lessons from the Audit

Let us review exactly what a financial audit is and what it can tell you about your current system and approach. The general financial audit process involves the auditor obtaining sufficient evidence to support the amounts your company is presenting are accurate.

In other words, the steps the auditor takes are to prove the balances are free from material (significant or large) adjustments. It does not provide fraud investigation or in-depth analysis of the results of the company from an industry perspective. The results of the audit can give a school insight into how it is doing. We encourage schools to consider the following questions:

• Did the financial audit include any findings?
• Did the audit identify any problems with your accounting system?
• What did the results of your financials tell you?

Let’s begin with discussing identified findings. Auditors are required to report any major findings as they review the financial records of a company. These are listed as part of the financial statements. They outline the potential issues, the problems they pose, and what the school should do to address them.

When an issue is elevated to a finding, the auditor is reporting that the problem could have an impact on either the audit process or the risk of issues within the system. An auditor should review the significance of the issue and report on those they determine a user of the financial statement should know about.
If you have findings, you should have discussions with your auditor about what those findings are, and how the school can change its system to address those findings. We encourage every school to respond to its findings as the threat that they truly are. A finding is a warning sign when it comes to finances.

Even if a school did not receive a finding in the financial statement, it does not mean there were no issues in your system. It only means that the issues were not considered significant enough to warrant a formal finding. When thinking about your accounting system, consider your auditor’s expertise and skills. You will miss a huge opportunity for improvement if you do not have a conversation with them about any potential problems.

To help with this, take the following steps:

• Start by looking at the adjustments the auditor made from your financials to the end financial statements.
• Determine what caused those adjustments.
• Make a plan to adjust your system to avoid the adjustments going forward.
• Talk to your auditor about any problems they had with determining, obtaining, or reconciling supporting documentation to your accounting records.

Adjustments (AJE’s) can be categorized into three different types.

1. Balances Do Not Match

The first type of AJE is an adjustment to the books because the balance on the entities’ books does not match the supporting documentation. This most often occurs because the school is not comparing the balances to the supporting documentation the auditor uses during the audit.

A great example of this would be the balances of accounts receivable or deferred tuition. A school should pull the same report the auditor uses regularly (weekly, or monthly) and adjust the accounts to the report. This will not only make your interim financials more accurate but also reduce the work performed during the audit.

Consider the supporting documentation your auditor will need when performing the year-end audit. This is a great tool to use in determining if your system is in line with the end-of-the-year process.

2. Maintaining Records For Client

The second type of AJE is when an auditor adjusts the books because they maintain certain records on behalf of the client. For example, schools often do not have accounting software to handle fixed assets and depreciation. Further, there are times during the audit when the auditor may find assets that were incorrectly recorded as an expense. The auditor would adjust depreciation expense to the calculated balance after those items were discovered.

If you are not maintaining your fixed asset and depreciation schedule, you should obtain an estimated schedule from your auditor. This will help you record a monthly adjustment to depreciation. If you have any significant asset purchases, you should discuss them with your auditor to get an updated schedule. As long as you have made an estimate, it is not needed to get the final depreciation number before submitting your financials.

These types of adjustments are important to identify so you can minimize them at the end of the year. Doing so not only prevents findings related to your financials but also gives you better information throughout the year. This helps with planning, composite calculations, and other key interim period work.

3. Closeouts and Reclassifications

The last types of AJE we want to cover are closeouts and other reclassification entries. The auditor makes these types of entries to “clean up” accounts and/or move balances between classes. The most common are adjustments to equity accounts and long-term liabilities.

While these might not be critical to interim work, they do represent an understanding of accounting principles related to financial statements. Implementing these entries often correlate with the completion and accuracy of the financials. They can affect the cost of your audit because it saves your auditor time.

The most important takeaway from AJE’s is to make sure you are reviewing and adopting them. The first step in the financial audit is to review the equity section and make sure it matches the prior year’s audit. You should receive a trial balance showing the amount of each of your accounts based upon your original information, the adjustments made during the audit, and the balances that tie to the audit report.

When you receive that report, you should make sure your year-end balances match your audit report balances. This ensures that your information is correct going forward since the prior information reflects the reported amount on your audit.

What Did the Results of Your Financials Tell You?

The end of your fiscal year is a great opportunity to review and assess the financial results of your school. It should be compared to previous years to reflect on the direction the school is heading. It also should be used to implement budget and financial decisions for the upcoming year. Even if your audit is just wrapping up, you should understand the story behind the numbers.

Your audit report should not just be a report that is stuffed into a cabinet drawer in case someone requests a copy. While some schools may have accounting skills, many schools cannot afford the knowledge, skills, and expertise an auditor can provide. If they do, then many of the things that could be learned from the audit process are probably already implemented.

If you don’t have someone with those skills on staff, reviewing the results of the audit and discussing those results with your auditor can provide great insight into what you should be aware of during the following year.

Over time, we develop natural tendencies to perform certain things at certain times. At the beginning of a new year, our thoughts gravitate towards goals. The completion of the audit should trigger your school to reflect on its accounting policies and processes. Unfortunately, we often see schools fail to adopt any change from the audit.

Each year, it can be a wild ride to complete the audit with crazy swings in adjustments, time spent scrambling to obtain documents, and stressful hours worrying about the results of the audit. It does not need to be that way. No matter the size, a school can feel confident about the accounting records it submits to its auditors. You do not have to be a CPA or have one on staff to achieve a reduction in adjustments between your records and the final audit report. An auditor can help you understand the process to match the supporting documentation of the audit.

Compliance Lessons from the Audit

Many of the things you can learn from the financial side of the audit can be learned on the compliance side. A school should consider the following items:

• Did the compliance report contain any findings?
• How did the audit process go?
• What weaknesses or issues were exposed during the audit?

What are Compliance Findings?

Just like financial audit findings, the findings in the compliance report are issues identified during the compliance audit. The first question that should be asked about the findings is if they represent isolated instances or if they represent system problems.

It is extremely difficult to go through a year of financial aid and not make a mistake. With all of the steps, the odds of a school’s financial aid department making it through the year without a mistake is low. These odds are reduced even more when volume increases, systems are not automated, or controls are less effective.

Therefore, the first question step is to determine if the findings represent a hole in your process or if they were an isolated instance. We always encourage schools to ask “How did this happen?” If the answer was that it was just a fluke, then we can move on. If it represents a hole in the process where it can occur again, we need to figure out what steps can be taken to prevent it from occurring in the future.

How Did the Audit Process Go?

Reviewing how things went during the audit process can help a school to identify areas that can be strengthened. Consider that the approaches of compliance and financial audits are similar. The auditor is gathering evidence to support the assertion that the school complied with specific rules and regulations. The items the auditor requests to support those assertions are evidence to show compliance.

If you had to scramble to find certain documents or if your auditor had to dig through a mountain of paperwork to find the documentation needed, then you probably should consider adjusting either your file methodology or your internal controls.

A great learning experience is to ask your auditor to share a blank student file work paper with you. This can help you see the items your auditor is looking for in the file. This can help your school hone in on the critical elements of documentation. If you understand what your auditor is looking for, you can prepare your information in a manner that helps them.

This not only saves your auditor time (and saves you money) but also can help identify or eliminate potential audit findings in the future. We are not suggesting you perform a student file review on your entire student population. We are suggesting you consider how your school handles student information to determine if it is being filed consistently and appropriately.

For other information gathered during the audit process, reviewing it can help you make sure your school is doing what it should when it should. It can help you recognize the documentation you need to keep on hand for easy access.

A great example is the campus security report. When you create this report, remember to keep the documentation you used to support the report. If you had problems finding it during the audit process, adjust whatever it is you are doing so it’s not an issue next year. There are many items auditors are required to obtain by the audit guide. Work with your auditor to make sure you are maintaining the information your auditor needs to make the correct determination in your audit.

Did You Discover any Weaknesses?

Our final thought about compliance audits relates to any weaknesses that were exposed during the audit. You or your staff may be nervous about having someone come into your school and check to see if you were compliant. We will do everything we can to reduce that worry. It is a natural feeling.

You can do things to help ease your mind. Take time to reflect on your confidence in your school’s systems and processes. You should review the areas you spent the most time on your audit. Which areas were you most concerned about? Once you have identified them, you can make changes so you can feel confident in those areas going forward.

We highly encourage you to talk to your auditor about honestly assessing their feelings about your school. It can be a great learning tool to minimize future issues. This is not about changing things to be the way your auditor wants them to be. Auditors are prevented from getting involved in your school’s decision-making process. However, they can help you grade the quality of your systems and identify ways you could improve them.

Every school should consider the audit process and how well your school navigated it. If it was a struggle, have an honest conversation with your team and your auditor. Make a plan to resolve the pain points. Take the time this year to make the changes needed to help next year go smoother. Not only will your auditor thank you, but also your school will run more efficiently and be better prepared for the coming year.

Want to know how Lightheart Sanders and Associates can help you with your upcoming audit? Reach out to us! We want to get to know you and your school.

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Over the past year, many schools have looked closer to moving to a digital file solution. At Lightheart, Sanders and Associates, we have been encouraging schools to go this direction for several years, because we have seen firsthand what a difference it can make.

If you are considering going digital, keep reading to learn our best thoughts and guidance on what to consider as you make this change.

Why Go Digital?

Our Story

In our company’s beginning, our firm would use the accounting world standard of workpaper folders to perform and document our audits. We would fill out the same workpapers each year, and place these documents in a binder. This binder would then be shuffled from my desk to the audit manager’s desk, and then to the audit partner’s desk for review, initials, and signatures. Picture our employees taking out a clean sheet of green ledger paper, opening the prior year’s workpaper file, and then copying the same paragraph to document the value of the land on an apartment building.

You can see how going digital would save us significant time in copying, a good amount of frustration in the organization, and even money. Digital files can automate things like

• Who receives access to files.
• Processes to make sure files are complete.
• Signature requests.
• Duplication of standard files.
• File storage and organization.
• And more.

Making these processes quicker and more efficient means employees spend less time trying to do it all themselves, and saving time means saving money.

We eventually moved from a fully paper system to a Windows Folder document dump and then later to a cloud-based system with software meant specifically for paperless accounting. This move has increased our efficiency and allowed our staff to work remotely, which was required as our geographic range of clients and staff increased.

A Beauty School’s Story

The same benefits that we saw from going digital all apply to a beauty school perspective as well. We had a school that struggled with disorganization before they moved their paper files into a customized, digital student file solution. Before making the change:

• Paper files were constantly moving around the office.
• Staff would have to spend time filing stacks of papers.
• Searching for files wasn’t quick or easy.
• Documents would somehow miss being filed, putting them in danger of being lost.
• Sometimes, student’s documents would find their way into other student’s files.
• Files requested for student financial assistance (SFA) audits were sometimes incomplete, which meant staff would need to make an impromptu meeting with the student to complete the missing document.

All these issues made audits more time-consuming and difficult for both our team and the beauty school’s team. After moving to a digital system, the school was able to simply create a user for the auditor, select the files the auditor needed access to, and finally select the students the auditor would have access to.

We asked the school how long they spent on student files for the audit after moving to their digital system. The answer was 6 minutes! In addition to the savings on the school’s side, the time spent on our file review was significantly reduced because documents were in the same consistent order, and we spent almost no time trying to find where things were. This flexibility and time savings were reproduced each year during the audit, each time NACCAS came to visit, and each time anyone else wanted to view the school’s records.

Choosing a Digital System: What to Consider

Appoint a Staff Champion

Before we get into what different features you should consider in software, it is important to consider your staff. Last year gave schools great insight into how well their staff and their students can adapt to changes with technology. If we are all honest with ourselves, sometimes adapting posed a challenge to our teams.

With any change, it is important to have a champion. This is the person who is going to carry the vision of the change to the rest of the team. The champion helps create a smooth transition by:

• Encouraging everyone to embrace the change.
• Listening to and resolving team concerns.
• Reminding the team of the benefits of the change.

Not having the team get on board with the new technology is similar to buying a sports car but still driving like it’s a tricycle. You can limp down the road but you won’t get the maximum benefit of having all the bells and whistles. We have seen many schools get tripped up implementing a great solution because of the hesitancy or struggle of a team member to adapt to the “new way” of doing things. Appointing a staff champion is a great way to avoid this struggle as much as possible.

What Features Will You Need?

Now that we’ve discussed how the change will impact your staff, let’s move on to the specific features you should consider when looking into different software. Fortunately for schools, many student management software providers have released options to move their files into a digital environment. The key is to find the right solution for your school’s wants and needs. When choosing a system for your school, here are just a few things we find important to consider:

• Interactivity
• Integration
• Controls

Your school’s needs in each of these areas will help you determine where you can save, and where you should invest in quality software.

Interactivity

One feature you will want to consider is the software’s interactivity. In understanding your school’s needs in this regard, a few questions are helpful to consider:

• Who Will Interact With the New System?
• How Will the Document Get into the System?
• How Can a Document Be Looked At?

Who Will Interact With the New System?

It is important to consider who and how people will interact with the new system. If your goal is to simply have a digital depository of student files, you may be able to limit the people who need access to or involvement in the student file system. If many people will be interacting with files, though, you may want a living file system. Living file systems can allow students and staff to see and interact with, sign, and send off documents. They can also help streamline processes and assist in catching missing information or ensuring compliance.

How Will the Document Get into the System?

A great question to ask is “how will the document get into the system?” There are several sources of documents:

• School generated documents such SAP reports, ISIR, Academic tests, and results.
• External documents such as high school diplomas, or student requests.
• Signed documents such as contracts, loan acknowledgments.

In considering the sources of documents, you should then determine how your school is going to get those documents into the system. While digital signature solutions may seem costly, they could end up saving hours if you are subsequently scanning and saving documents.

How Can a Document Be Looked At?

In addition to asking how a document gets into the system, you should also ask how can a document be looked at. Consider all of the individuals who may want access to that document and how they may need to see it.

For example, a financial aid officer will want to be able to review contracts, award letters, ISIR, SAP reports. A student may want to see a copy of their contract, academic records, and financial aid information. An auditor has a specific list of items they want to see. A NACCAS evaluator will have an additional list. Many systems have great tools to customize security and access.

Integration

A school should consider how connected the student file system should be with other areas of the school. Will the system integrate with academic tracking, financial aid awarding, or enrollment processes? Having a system that houses several other areas can make a big difference in streamlining these important processes.

A great example that we feel is a must-have is with your student management software, specifically when a student reaches SAP. The student management software would generate the SAP report. The SFA office would then reach out to the student to review SAP, discuss any issues, and have the student sign their SAP report digitally. The report would then be automatically stored in the student file. Figuring out if your systems will work with each other to make processes smooth can help you choose the best software for your school.

Controls

Another big area to consider when evaluating digital solutions is the process and controls in place. For example, how easy is it for a financial aid officer to see what documents are missing from a student who is wanting to get their disbursement? Some systems allow you to set up rules to help maintain compliance with regulations. You can set requirements for the student file to have specific documents before a financial aid officer could draw funds for the student.

Consider a new student and all of the documents you are required to obtain before drawing funds. A system that keeps track of missing documents can easily help the financial aid officer get any missing information from the student.

From an integration standpoint, your system may also allow students access to review information. It could also give reminders to submit any missing documentation based on rules set up in your student file system. This could look like a student checking into the software and noticing they need to complete missing documents for financial aid.

Have Questions? Reach Out to Lightheart, Sanders and Associates!

If you have more questions about why your school should move to a digital file system, or what systems could be best for you, feel free to contact us! At Lightheart, Sanders and Associates, we specialize in accounting, audits, and other financial services for beauty schools. Our goal is to help you cross all your Ts and dot all your Is so you can get back to doing what you do best: running your beauty school!

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