Financial Audit for Nonprofits: A Complete Guide

We’ve made the process easier for you by creating a free nonprofit audit checklist to keep handy for the right time or get started right away. The federal government is not the only one that requires regular audits by nonprofits. One-third of all states in the US need nonprofits to perform regular audits if they solicit state residents.

Do You Struggle to Make Sense of Your Financial Statements?

A nonprofit audit is an independent examination of audited financial statements and records to ensure compliance. Nonprofit organizations, recognized for their contributions to the public good, may undertake a variety of audits to ensure their operations are transparent and efficient. A financial audit, for example, scrutinizes an organization’s financial statements to verify their accuracy. This type of audit is essential not only for maintaining donor trust but also for adhering to financial regulations. There are a few different types of audits that a nonprofit organization can go through. The most common type of audit is the financial statement audit, which is conducted by an independent certified public accountant (CPA).

Auditing Non-Profit Organizations: Key Areas of Focus and How to Prepare

These audits are often reviewed by federal oversight agencies, making accuracy and experience critical. We don’t just check boxes—we help nonprofit leaders understand their financial health and improve governance. Once the auditor completes their work, they’ll compile their findings into a report and present it to your nonprofit. The first thing to know about this report is that if it isn’t clean, that is totally fine!

Provide an RFP

• There are many misconceptions about audits, and the process can be challenging to understand at first.
• When the Internal Revenue Service (IRS) audits a nonprofit organization, this happens under a narrow set of circumstances.
• The cost of an independent audit varies depending on the geographic region where the nonprofit is located and how large the organization is.
• We have had many years of audit experience with NPOs and IPCs entities across many different sectors, GeBIZ and various government agencies in compliance with the regulatory requirements.
• This is in contrast to a business where revenue is typically recognized at the point of sale or service delivery.

An audit can provide valuable insights into your nonprofit’s financial health and help to identify any areas of weakness or governance needs in order to reduce the risk of potential fraud. 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.

All incorporated Not-for-Profit organizations should review these requirements to determine if changes can or should be made to the type of report being issued by your Public Accountant. Internal controls are another critical focus area as they help organizations prevent and detect errors or fraud. Effective controls include clear policies, separation of duties, and regular monitoring. Auditors prepare a draft report that includes the results of their audit, highlighting any discrepancies, compliance issues, or areas needing improvement. Moreover, for those based in challenging financial environments like San Francisco, seeking expert advice can be invaluable.

Think of it as a dress rehearsal for your official audit using the audit checklist. Specifically, you’ll want to make sure you comply with IRS requirements for nonprofits. Use industry-specific standards to document your compliance with any regulations that govern your organization.

Independent Audit Process for Nonprofits

• We recognize that each financial audit is unique, with its own set of challenges and opportunities.
• For instance, nonprofits receiving significant public contributions may be legally obligated to submit audited financial statements.
• Common challenges include limited staff capacity, missing or incomplete documentation, inadequate internal controls, and the need for enhanced financial reporting processes.
• These are crucial for nonprofits as they help maintain their tax-exempt status and can influence public confidence in their operations.
• Moreover, understanding how nonprofits make money can also illuminate why an audit is necessary.

Here’s how this nonprofit audit guide will help you prepare, understand what to expect, and ensure transparency throughout the process. Once you’ve selected an auditor, they should provide information about preparing for the audit. This will usually come in the form of a Provided by Client (PBC) list, which ensures you give them access to all of the documentation they’ll need to effectively assess your nonprofit’s finances. After you’ve received the grant, foundations may also ask for financial reports that show how the funds were used. By performing regular audits on your own, you’ll be prepared for these requests. Adding an audit requirement to your organization’s bylaws may seem redundant for many nonprofits.

Other Services We Provide to Non-Profit Organizations:

We take time to get to know our clients during the planning stage of the audit, so the remaining stages of the process are performed as quickly and smoothly as possible. When the audit report is complete, we will explain what is working for your organization and what areas need improvement. We will also review suggested strategies and answer any questions you may have. Send out an RFP and hire an independent firm to conduct your financial statement audit. Before you face your official audit, conduct a self-lead financial review of your organization.

Independent audits are performed by a public accounting firm or an individual who is a certified public accountant (CPA). Absent the curiosity of the IRS, nonprofit leaders may seek accounting services for nonprofit organizations audited financial records for other reasons. A nonprofit audit might result from a judicial directive or another agency request, e.g., an agency granting federal funding. After all, raising and disbursing funds is sometimes a tedious, monotonous business.