Understanding these factors will help you negotiate audit fees and plan for the cost. If you’ve had an audit before, you might already have access to a past Pulled by Client (PBC) list of items that your auditor will need from you. If you’re new to the audit process, you can request one of these documents from your auditing firm so that you can prepare the information your auditor needs. The provided by client list for a nonprofit audit can serve as the foundation that organizations can use to ensure that their financial practices are transparent, accurate, and compliant.
Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional. Legality aside, even if you aren’t required by law to get your nonprofit audited, it’s still in your best interests to get one. Although it seems like a drag, read below how an audit can actually help your nonprofit. Auditors will review your financial statements and assess the accuracy of their reporting. They will also look for misstatements or irregularities that could indicate fraud or other issues.
What Are Independent Nonprofit Audits?
Holding back information or not being responsive may delay your audit or cost you more money. Audits can also be helpful in identifying areas where your organization can improve its financial practices. Increasing donor trust in the financial health of your nonprofit can be achieved by making audited financials available upon request or on your website along with your Form 990 returns. There is no set timeframe for how often a nonprofit should have an audit if not required by law or contract. However, most organizations choose to have a financial audit conducted every year once they reach a point of needing one. Your auditing committee should include at least one or more financial experts with knowledge of GAAP principles and financial reporting requirements.
- If the audit committee is assigned this role, if a staff member raises a concern about the nonprofit’s financial practices, the employee reports their concerns to the chair of the audit committee.
- Also, regular audits can help your organization receive more funds by encouraging accountability and transparency with your donor base.
- The Sarbanes-Oxley Act requires publicly traded companies to rotate lead auditors — not necessarily audit firms — every five years.
- Almost every state where you register your nonprofit will require an independent audit under some circumstances.
- Because of this, the Nonprofit Audit Guide includes a chart that details the audit requirements for all 50 states.
They’ll also examine your internal controls to ensure the security of your finances. This article will discuss financial statement audits for nonprofit organizations. We won’t deal with other types of nonprofit audits, like compliance audits or governmental audits, which can differ in certain respects. External audits are typically the most reliable auditing option for nonprofits. Auditors or auditing firms will look at your financial statements, internal controls, and best practices to find areas for improvement. Some of these are required by other federal or state government organizations, foundations, or nonprofits themselves.
Financial Review vs Audit
Once the auditor has all of the necessary documents and information, they will start to conduct the audit. This process might involve reviewing your financial statements, interviewing staff members and key stakeholders, examining internal controls, and assessing risk areas in your organization. Many nonprofit organizations both large and small need to undergo a financial statement audit every year. Preparing for a nonprofit audit can be overwhelming and anxiety-filled, especially if it’s your first audit or you don’t have a strong and experienced financial team. In some states, nonprofits must conduct an audit if they receive state funding. The organization must submit proof of the audit to the agency from which the funding originated.
She has reshaped our organization and her guidance, leadership and expertise have enabled our Board of Directors and staff to focus on their work and further our mission. — Dr. Cynder Sinclair is a consultant to nonprofits and founder and CEO of Nonprofit Kinect. She has been successfully leading nonprofits for 30 years and holds a doctorate in organizational management. Instrumentl is the all-in-one grant management tool for nonprofits and consultants who want to find and win more grants without the stress of juggling grant work through disparate tools and sticky notes.
Nonprofit Audit Guide© Table of Contents
Once you review the RFPs from your varying choices, select an auditor that best meets your needs. Audits help ensure that an organization is operating in an efficient and compliant manner and they can help identify areas where improvements may be needed. Take our 2-minute survey to find out if outsourced accounting and bookkeeping is a good fit for your organization. Tom is a multi-disciplined leader with over a decade of experience in nonprofit operations, technology leadership in government, and over two decades of servant leadership. Another example might be a recommendation to add a particular policy or improve an expense reimbursement process.
As part of its fiduciary responsibilities to the nonprofit, the board is responsible for oversight of the charitable nonprofit’s accounting functions and the performance of the independent auditor if one is hired. The board of directors as a whole is responsible, unless it delegates this authority, such as to an audit committee. Remember that CPAs and auditing firms work with their clients to improve financial practices and ensure accountability. In this sense, they are responsible to the public as well as to their clients. During these audits, your auditor will review your organization’s various financial statements and reporting to determine opportunities that will help improve the financial health of your organization.
Nonprofit Audits: A Guide to Ensuring Financial Accountability
Auditors will review any laws and regulations applicable to the nonprofit sector, including tax-exempt status compliance and fundraising restrictions. They may also look into grant compliance or other specific requirements related to your organization. This type of audit focuses on the accuracy and completeness audit guide for small nonprofit organizations of financial statements. Financial audits are often used for tax purposes or to meet requirements for certain grants. In general, it’s best practice for nonprofits to perform regular audits so that they can identify areas of risk or potential noncompliance, improve operations, and strengthen financial oversight.