Q: How can audits pay for themselves?

A: When they reduce interest expense more than the fees paid for the audit.

The Wall Street Journal reports here on a study by the University of Chicago Booth School of Business.  The school looked at 10,000 closely held companies.  The analysis found that businesses with audited financial statements saved an average of $6,900 for every $1 million in debt.  The average amount of debt in the study was $3.3 million with interest savings of about $23,000.

For you finance types that is essentially a discount of 0.69% on the loan rate. For banker types, that is 69 basis points. Everyone else, let’s call it just over half a percent savings.

My guess is that the same savings would apply in the nonprofit community.  I would further guess that also applies to churches. That means for most churches that have a loan to finance their campus, the cost of the audit is more than offset by savings in interest.

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