Audits help identify inefficiencies, protect against fraud, and demonstrate credibility. Independent audits show donors and investors that your organization takes financial integrity seriously. You’ll need to verify the accuracy of your payroll records and employment tax filings as part of your audit prep. Verifying records also includes gathering and organizing proper documentation for all employees and contractors. Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits.
- Additionally, this allows organizations to make informed decisions about how they manage their funds, endeavor to be compliant in their operations, and demonstrate good stewardship of donor funds.
- It also gives you the ability to classify net assets (with restrictions or without restrictions) and provide this information to the auditor to determine if restrictions were satisfied.
- That’s why this article will help guide you through everything you need to know about audits for nonprofits.
- It’s important to assess your nonprofit’s needs accordingly and talk with a financial professional if there’s ever any confusion.
- Our CPAs are experienced in nonprofit financial audits and have the tools and information you need to prepare you for a smooth auditing process.
- In this type of audit, the auditor will review reporting procedures at the organization, the internal controls in place, and evaluate the risks for fraud, theft, or loss.
Free Nonprofit Organization Audit Checklist
Proper cash flow management, planning, and annual budgeting will allow for a nonprofit to prepare for the expense of an audit. Understanding the scope of a nonprofit audit is an important part of the process to ensure accuracy and compliance with reporting standards. The scope refers to the extent and type of review that will be conducted by the auditor. This can vary greatly depending on the size and complexity of the organization, as well as its financial activities and strategy. A compilation is the least in-depth examination of financial statements and provides no assurance as to the accuracy of those statements. An audit is not required for accounting services for nonprofit organizations small nonprofits but it is highly recommended because it provides a third-party assessment of the organization’s financial records and practices.
When Is a Nonprofit Audit Required by Law?
An independent audit may be among the nonprofit audit requirements for those enterprises receiving federal funding. Congress to assure compliance with rules governing federal grant management standards and nonprofit organizations, particularly those that spend more than $750,000 of said funds annually. The same legislation advanced consistent procedures to conduct an independent audit of a nonprofit organization. Recipients of government contracts may also fall subject to financial review, i.e., they must submit audited financial statements upon request of the agency that awards the contract.
- An agreed upon audit procedures audit is tailored to meet the specific needs of a nonprofit organization.
- At least 80% of your members, voting at your annual meeting, must agree by passing an “extraordinary” resolution.
- Nonprofit audits typically include evaluating internal controls, analyzing financial data, and assessing risks.
- If you still have questions about nonprofit audits or any other financial issues, please contact us at
- Before your audit, it’s a good idea to analyze your internal controls and procedures.
Nonprofit Audit Report
A clean audit can validate your internal controls, reassure funders, and strengthen your organization’s financial standing. For nonprofit executives, preparing for and managing an audit successfully requires foresight, transparency, and alignment across departments. An agreed upon audit procedures audit is tailored to meet the specific needs of a nonprofit organization. It is an independent review of a specific component or internal control system within the organization. Like independent reviews, this kind of audit does not meet the level of assurance required by federal or state regulations.
With a compilation, an accountant compiles your financial statements from documentation you provide them. They do not audit or review the information, therefore making them unable to express an opinion on whether the statements comply with GAAP. 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.
Case Study 2: Large Nonprofit with Diverse Revenue Streams
A compilation is the cheapest option and can help highlight issues with how financial data is currently organized. A compilation provides no assurance or analysis of the numbers themselves beyond whether they all add up correctly. NFF does not generally recommend that organizations invest in compilations.
