How to Conduct an Effective Year-End Self-Audit

Hearing the word “audit” can strike terror into the hearts of the most confident among us. But there are applications in which an audit—a careful assessment of your finances and accounts—can be indispensable. For all of us, a self-audit allows us to expose where in our financial health we can stand to improve, what strategies are working and which are not, and what we need to do to more fully and comprehensively meet our financial goals, both personal and professional.

That said, performing a self-audit isn't as simple as cringing at your expenses and vowing to make more and spend less.

I'm here to give you the right questions to ask and strategies to kickstart an effective self-audit so that you can build lasting wealth in the new year.


5 Strategies for Conducting an Effective Self-Audit

A self-audit can be approached with several different goals in mind, and it really depends on your concerns. You can look at it as an exercise to protect yourself from a real audit, through the eyes of actual IRS agents. This approach is more focused on perfecting your systems, procedures, and recordkeeping so that paper trails are spotless and all of your tax records are clean.

The approach that is more holistic and encompassing includes these things, but it also takes into account your overall financial goals and strategies. This not only protects you from an IRS audit through risk mitigation but it helps you focus and achieve your financial goals. So where do you start?

1) Ask the Right Questions

A successful self-audit begins with the right questions. If you're going to assess the state of your finances, you have to know what you're looking for and where you want to be. The benchmarks must be set. These are just some of the questions to ask yourself as you begin to take a closer look at your finances:

  • Are all of my finances where I want them to be? This is an encompassing question that covers more than your salary. You have to look at every area and think about your goals and make plans to reach them. What is your salary? Benefits? Healthcare and insurance plans? How about your retirement? Are you on track? What about investments and additional cash flow? Sit down and take stock of everything. Be critical.

  • Where am I weak? Most of us have a financial weakness. This could be a gap in knowledge, like in not knowing enough to feel confident in investing or navigating taxes or having disorganized records. It could be a weakness of impulse spending. Identify where you can stand to improve and make it your goal to learn more or curb impulsive behaviors.

  • Who should I include in this conversation? For both personal and business finances, there are multiple people who should be involved in money matters. For personal finance, spouses need to be on the same page. It's so crucial to communicate about money. While one spouse may be more confident or “good at” the books than the other, regular communication about money is healthy not only for your bank account but for your marriage. If something were ever to happen to the checkbook-balancing spouse, you ensure that the other is not left helpless in financial matters.

It is also valuable to include trusted third parties, like a CPA, in your financial matters, to help with decision making and tax prep.

For businesses, it's not too different. Including advisers, accountants, and other experts in the conversation encourages accountability, transparency, and perspective.

2) Know What the Pros Look For

You can have a professional audit done for a business that isn't conducted by the IRS. They take stock of your finances, taxes, records, and follow the paper trails to ensure that, in the event of a real IRS audit, your business has nothing to hide and would not face any unpleasant consequences from Uncle Sam due to fraud. However, these professional audit services don't just make sure your businesses are on the up-and-up. They can instruct you on best practices that save money and streamline your systems.

These improved leadership and management practices save money over time and make it much easier to keep up come tax season.

So what do the pros do?

  • Streamline onboarding processes for new clients and employees

  • Examine processes for handling invoices and expenses

  • Revisit technology for accounting, checks backup systems

  • Improve overall financial controls

3) Review Recurring Costs and Cut the Fat

In our increasingly automated world, one of the problems that we often face without realizing it is the automated nature of payments. When we pay for so many recurring things automatically, we often fail to realize just how much money is leaving our accounts each month. It is an unconscious act, and unless we are watching our accounts closely, these expenses can sneak up on us.

A great audit practice is to review these recurring and automated costs to truly get a sense for your recurring expenses. From there, cut what you don't truly need. It might be redundant services or ones you can find cheaper alternatives for. Take stock of what you really use and need, and cut that which you don't need or get enough use out of.

4) Go Over Your Finances Every Month

One of the most important lessons to take from a self-audit is the importance of going over your financials not once at the end of the year, but each month. That doesn't mean you have to go through a full deep-dive audit each time, but it is crucial to convene and review, be it with a team at work or with your spouse at home. This is how you stay on target and within budget. You will catch warning signs, figure out what's working and what doesn't, and better fine-tune your financial strategy.

5) Brush Up on Your Recordkeeping

Lastly, the self-audit should involve extensive recordkeeping. Keep hard copies, digital copies, and back-ups. Be able to cross-reference and double-check. Record expenses, income, and other financial events as they happen versus trying to record them retroactively. This only happens when you set up the systems first. It may take hiring a professional to help you optimize your bookkeeping.

Regardless, it's worth doing to avoid the hassle and headache of it all.

A self-audit can give you a leg up in the new year, not only to prevent tax troubles but to help you realize your wealth potential. Don't miss out on the opportunity.

What's the most surprising thing you've discovered when taking a closer look at your finances? Share the biggest lesson learned in the comments.