Where can I learn more about nonprofit audits? Knowledge base 

Where can I learn more about nonprofit audits? Knowledge base

Refer to the AICPA Audit and Accounting Guide for Not-for-Profit Entities for additional information and examples. If your organization has decided to (or is required to) conduct a financial audit, you’ll need to choose an auditing firm that will best suit your needs. This selection process is very important for your nonprofit to get the audit guide for small nonprofit organizations most out of the financial audit. It’s important to remember that financial audits are not the only types of audits you may encounter. Compliance audits review your organization’s adherence to regulations and requirements set by the federal, state, and local governing entities as well as your bylaws and other compliance requirements.

• 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.
• In this article, we’ll discuss different types of audits, the benefits to your nonprofit, and the steps you’ll need to take.
• The obligation to file an independent audit report with the state government is generally just one requirement among many in connection with charitable solicitation registration.
• The Internal Revenue Service (IRS) would operate as normal, and all 83,000 employees would continue to be paid because the agency’s funding would not expire.
• These nonprofit audits are conducted by third-party organizations and individuals, providing an outsider’s perspective of your organization.
• Once you’ve made these changes, you can send the audited information and modifications to the IRS to update your 990 forms.

Keep in mind that your nonprofit audit isn’t an opportunity for the auditor to sit back and accuse your organization of doing things incorrectly. Rather, it’s an opportunity to learn about how your organization can continue to improve its processes. These improvements may be simple actions that amplify to create a major impact, or they may be more complex changes that will take hard work and focus. These discussions can help your committee and organization leaders learn more about the audit itself and prepare for any questions that may arise from the board when you present the management letter to them. You should make sure you have as much information upfront as possible to assure board members that you’re taking the audit seriously and determine the next steps coming out of it.

Accountability

This essential reference to the unique aspects of auditing for not-for-profit entities includes accounting and financial statement preparation. An audit starts with the initial contact and continues until a closing letter is issued. A compliance check or compliance check questionnaire starts with the initial contact. The IRS may contact the organization again if the IRS needs further information, or if the organization does not respond to the compliance check or questionnaire. The IRS typically issues a closing letter at the end of a compliance check, but not at the end of a compliance check questionnaire.

The Nonprofit Audit Guide will NOT, however, help you identify an independent auditor. For that task we recommend you connect with the CPA society in your state which may maintain a list of CPAs experienced in audits of tax-exempt organizations. The National Council of Nonprofits has created this Nonprofit Audit Guide© to provide charitable nonprofits with the tools they need to make informed decisions about independent audits. While the preceding quotation was written in a business context, a well-functioning audit committee is important to every nonprofit organization as well – for the very same reasons noted. Adopting and maintaining an audit committee is a best practice for nonprofit organizations and is actually required by some states.

Perform audits of nonprofit organizations with confidence

Nonprofit organizations face an increasingly challenging economic and regulatory environment. As giving practices continue to evolve, nonprofits often find themselves doing more with less. Adjusting to these new realities means that proper financial management is more important than ever. If mismanaged, the various tax and accounting considerations that are part of the annual nonprofit life cycle can become obstacles to an organization’s mission and goals.

If the board of directors decides to appoint an audit committee, the board must ensure that the audit committee is constituted in a way that is consistent with state law. (For instance, in some states only board members may serve on standing committees of the board. In other states, standing committees may include non-board members.)  Audit committees are typically made up of three to five members. Remember that none of the members should be employed by the charitable nonprofit or audit firm in order to maintain the independence of the audit committee. Generally Accepted Auditing Standards (GAAS) require certain elements be present in an auditor’s report on an entity’s financial statements that are prepared in conformity with GAAP.

Steps to Prepare for a Successful Nonprofit Audit

This should be the first place you look to see when it should be conducted. For instance, some separate state or federal agencies may require an audit from your nonprofit depending on your size or spending habits. Or, grant organizations may require one to prove your financial responsibility before providing funding. One-third of states in the US require regular audits for nonprofits that solicit funds from the state’s residents. Many states also require nonprofits to perform an audit when renewing their nonprofit registration once they reach a specific revenue.

Nonprofits who may not be required to conduct an audit may still consider doing so in order to make sure their financial records and internal controls are up-to-par and to find potential opportunities for improvement. You’ll be able to identify opportunities to improve your organization’s internal controls, financial practices, and more. This must-have resource for NFP accounting and auditing professionals is an essential reference that will assist you with the distinctive aspects of accounting and financial statement preparation and auditing for NFP entities. This page explains the IRS audit process for charities and other nonprofit organizations.