You’ll still want to practice financial responsibility and accountability by carefully reviewing your financial statements or hiring a nonprofit accountant to do it for you. Internal review procedures and internal audits will help protect your nonprofit from scams, overspending, and other financial missteps you may encounter. Effective audit committees are not merely formalities to receive lip service. The Nonprofit Audit Guide will NOT, however, help you identify an independent auditor.
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. 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. 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. Nonprofit organizations face an increasingly challenging economic and regulatory environment.
Resources to help you plan for the audit
Audits give your nonprofit an excellent overview of where you need improvements. Nonprofits that do this will hire an auditor for a complete review of their financial records. This type of audit generally addresses issues with your tax return, discrepancies between your organization’s and freelancers’ or employee returns, or if a division of the IRS issues an IRS-wide examination.
- Audits must be performed by a CPA (Certified Public Accountant) or an auditing firm.
- Additionally, the Guide includes information about special audit requirements that apply to nonprofits that receive funding from the federal government.
- This means that the auditor will examine the procedures and controls that the nonprofit has in place to prevent and detect errors and fraud.
- Finally, nonprofits that understand the benefits of audits will include this requirement in their organization’s bylaws, making this mandatory each year.
- Use Google to find at least three options (based on reviews and portfolios) for CPAs or auditing firms that work with nonprofits.
- Finally, the timing of your nonprofit’s audit could affect your audit fee.
Financial audits primarily look at your nonprofit’s financial statements to find opportunities for improvement. The auditor may suggest ways to cut costs or recommend changing certain internal controls. BDO’s Nonprofit & Education Practice and the BDO Institute for Nonprofit Excellence℠ have long been dedicated to audit guide for small nonprofit organizations client service, and to furthering the resources and discourse surrounding nonprofit financial management. We encourage you to refer to this guide frequently as you consider your organization’s financial needs and progress. A CPA examines your financial records, but much less thoroughly than in a full-blown audit.
Nonprofit Audits: A Complete Guide to Financial Auditing
Regular audits can strengthen an organization’s reputation, foster stakeholder trust and contribute to long-term success. Get our FREE GUIDE to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. Send out an RFP and hire an independent firm to conduct your financial statement audit. As a whole, the audit process takes approximately, 8-15 weeks depending on the size and complexity of the organization.
Last but not least, conducting an independent audit can help meet the requirements of some private foundations for grant eligibility. Many grant-making organizations require non-profits to submit audited financial statements as part of their grant applications. Through an audit, non-profit organizations can broaden their potential funding sources and demonstrate their commitment to financial best practices.
Step 3: Post-audit adjustments & reviewing the report
The auditor will do an independent investigation to test the accuracy of your accounting records and internal controls. The auditor’s letter is attached to the front of your financial statements. A clean bill of health from an auditor shows the world that you’re keeping your books in a responsible manner.