Nonprofit Audit: A Complete Guide

In Illinois, nonprofit audit requirements mandate that charitable organizations with annual revenue over $300,000 file audited financial statements with the state’s Attorney General as part of their registration. Working with an experienced independent auditor is essential for achieving an accurate and fair assessment. A certified public accountant familiar with nonprofit accounting practices can provide an objective view of your organization’s financial statements, policies, and internal controls. To guarantee that your organization meets relevant standards, select an auditor with experience in the nonprofit sector.

What is an independent audit?

So, if you run or manage a nonprofit firm, you need to pay attention to all the little details and ensure a smooth audit procedure. They are an integral part of ensuring that nonprofits like the Literacy Lab and Cultural Survival remain effective, accountable, and true to their missions, ultimately leading to a more equitable and just society. Performance audits go beyond financials and compliance, assessing how well an organization meets its goals and objectives. These audits can highlight areas where a nonprofit is excelling or identify opportunities for improvement, thus supporting the organization’s mission and enhancing its impact. Through meticulous examination, auditors https://holycitysinner.com/top-benefits-of-accounting-services-for-nonprofit-organizati/ pinpoint areas of concern, ensuring financial stability and preserving the organization’s reputation. To find the right provider for your NPO, begin by doing a lot of initial research and making a list of potential auditors.

Nonprofit Audits: A Guide to Ensuring Financial Accountability

The entire process, from selecting a nonprofit auditor to implementing the audit's findings, can take anywhere between 8-20 weeks. A financial statement audit is a thorough review of your financial statements to determine if your financial statements present fairly, in all material respects, in accordance with generally accepted accounting principles. One of the quirks of working in the nonprofit sector is understanding that not all organizations are required to undergo an audit. Typically, smaller nonprofits, especially those with limited funding sources, might not face a mandatory audit. Lewis.cpa is well-versed in making these financial reviews an asset for nonprofit concerns. We can walk you through the process for a nonprofit audit and ensure that you understand the entire process.

• As a result, it is considered “best practice” to refrain from engaging the same individual or firm for both auditing and non-auditing services (other than filing IRS annual reports, such as the IRS Form 990).
• You must start working with an auditor early enough to meet external and internal deadlines.
• A nonprofit audit is a comprehensive review of an organization’s records, reports, transactions, policies, and procedures.
• The auditor should be independent and have the necessary qualifications for conducting such an audit.
• Lastly, auditors determine whether the nonprofit uses donor funds in accordance with their stated goals and objectives.

Improved Transparency

• An independent nonprofit audit differs from one executed by the IRS in several areas.
• These deficiencies make it more likely that the financial statements will contain undetected or unprevented material misstatements.
• An internal audit is a chance to step back, see the bigger picture, and look at your nonprofit’s history and trajectory.
• The requirement may depend on the size of the organization, funding sources, and regulatory requirements.
• Typically, smaller nonprofits, especially those with limited funding sources, might not face a mandatory audit.
• Auditors will also review the organization’s policies and procedures, including its operations and management.

Send out an RFP and hire an independent firm to conduct your financial statement audit. Your organization’s Form 990 filing deadline is the 15th day of the fifth month after your fiscal year ends (May 15 if your fiscal year follows the calendar year like most nonprofits). If you won’t have enough time to complete your audit, start incorporating the recommendations, and fill out the form by the deadline, you can file for an extension of up to six months via IRS Form 8868. For the purposes of this article, we’ll primarily focus on independent financial audits—just don’t be surprised if your nonprofit undergoes one of the other types at some point. Get support at every stage of the nonprofit audit process by partnering with Jitasa. Despite the importance of the annual audit, too many nonprofits treat audit prep as a once-a-year scramble—digging through files, chasing missing records, and hoping things line up.

Nonprofit Audit Checklist: How to Prepare for a Smooth Audit

For example, in QuickBooks, you can easily change a transaction even if it clears the bank, or is in closed accounting period. Discover how proper nonprofit revenue recognition strengthens financial transparency, ensures compliance, and builds donor trust. Additionally, the Guide includes information about special audit requirements that apply to nonprofits that receive funding from the federal government. Your auditing committee should include at least one or more financial experts with knowledge of GAAP principles and financial reporting requirements. You can also share audited financial reports on websites like Charity Navigator, where many foundations search for organizations to fund.

• That’s why our in-house team of 6 former nonprofit auditors helped put together this guide to nonprofit audit checklist to make sure  your audit goes as smoothly as possible.
• The primary purpose of a non-profit audit is to assess the accuracy, completeness, and compliance of the organization's financial statements and transactions and its adherence to relevant laws and regulations.
• Below is a detailed checklist that covers all the essential steps and documentation you’ll need to assemble and organize before your audit begins.
• ‍This type of audit focuses on the accuracy and completeness of financial statements.
• The primary purpose of the audit is to verify that the organization’s financial statements are accurate and compliant with generally accepted accounting principles (GAAP).
• Although you’ll need to put in effort to prepare beforehand and apply the auditor’s recommendations afterward, the benefits of financial auditing typically outweigh these costs.

Use them to reaffirm your organization’s commitment to integrity, transparency, and fiscal responsibility. 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. Filing your organization’s 990 returns can be daunting, but it’s a critical component of maintaining your nonprofit status. To avoid common pitfalls, such as omitted income, ensure all financial information is accurate and reviewed by board members or the Executive Director. Deadlines are paramount, and proper checks can prevent filing errors and uphold accountability. To ensure compliance, it’s recommended to have leadership spearhead discussions on grant funding and create core policies that bridge finance and program offices.

• Most often audits are considered to be financially focused processes designed to inspect and analyze a nonprofit's back office.
• Use Google to find at least three options (based on reviews and portfolios) for CPAs or auditing firms that work with nonprofits.
• Nonprofits often choose to conduct voluntary audits even when not legally required.
• The Nonprofit Audit guide is a tool designed to help nonprofit organizations fully understand the process of an independent audit.
• Financial audits focus on the accuracy and completeness of an organization’s financial statements.
• By understanding any risks or areas for improvement within each department’s operations, auditors are able to provide meaningful feedback that can help nonprofits improve their overall financial planning and performance.

In the District of Columbia, as well as 39 of the 50 accounting services for nonprofit organizations states, nonprofit charities must be formally registered before fundraising. As mentioned, nonprofit rules vary from state to state, so you must review the rules in your state if you want nonprofit status for your organization. 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. After you've reviewed the audit report, it's time to implement any changes or improvements that have been suggested. This could involve updating your policies and procedures, increasing internal controls, or instituting new processes.