The Beginners Guide to Nonprofit Auditing Free Checklist + FAQs

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. Other firms that benefit from federal loans, food donations, real estate conveyance, and subsidies can likewise produce an independent nonprofit audit for government agencies.

• Finally, adopting some good tips on managing nonprofit finances can significantly improve an organization’s overall financial health.
• 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).
• This potential occurrence is another good reason why accounting records should be consistently kept in order.
• The entire process, from selecting a nonprofit auditor to implementing the audit’s findings, can take anywhere between 8-20 weeks.
• Other firms that benefit from federal loans, food donations, real estate conveyance, and subsidies can likewise produce an independent nonprofit audit for government agencies.

Report: Success Rates for Different Types of Grants

‍The first step to auditing a small nonprofit is to select the auditor that is right for your organization. The auditor should be independent and have the necessary qualifications for conducting such an audit. These types of audits also provide assurance to donors and other stakeholders that their funds are being used appropriately and in accordance with the organization’s mission. Lastly, an often overlooked benefit of the nonprofit audit is that it can provide constructive recommendations for improving the organization’s operations. This National Council of Nonprofits map is helpful for evaluating state requirements, though funders may also impose audit requirements, even for organizations in states that don’t require them. Always, but particularly in the current environment, the ability for a nonprofit to show that it takes fiscal compliance and oversight seriously, is as important as ever.

Nonprofit Audit Guide© Table of Contents

We provide solutions specific to the nuances, challenges, and operations of not-for-profit organizations—while customizing plans to meet your unique needs. Our Outsourced Finance and Accounting Solutions are designed to alleviate your administrative burden, allowing you to focus on your program and goals. We go beyond traditional accounting and reporting by providing valuable insights that empower clients to make informed decisions that positively impact their operations and profitability. Protecting your not-for-profit from reputational, financial, and legal risk can make all the difference for your organization’s survival. Grant compliance and proper management is also key to help your organization retain crucial funding.

How long does the nonprofit audit process take?

If the auditor finds any non-compliant transactions, they The Key Benefits of Accounting Services for Nonprofit Organizations may be reported to the board of directors as findings of the audit. If your nonprofit does not meet any of the criteria above, an audit is likely not required unless your state has different criteria. In the nonprofit world, organizations are well aware that there are “strings attached” to many of the resources that support the mission work.

• Plus, going through this process is great for demonstrating transparency among stakeholders.
• In fact, 95% of Classy’s customers choose our platform year after year for the highest-quality solutions.
• There are many misconceptions about audits, and the process can be challenging to understand at first.
• Auditors prepare a draft report that includes the results of their audit, highlighting any discrepancies, compliance issues, or areas needing improvement.
• Keeping up with the latest technology trends and solutions can often be a challenge for not-for-profit organizations.
• As a member, we have access to comprehensive resources that assist us in further enhancing the quality of our nonprofit audits.
• The same legislation advanced consistent procedures to conduct an independent audit of a nonprofit organization.

How Long Should You Keep Your Tax Records in Case of an Audit?

An organization’s revenue and donations are perhaps the most important aspects of running a nonprofit. Shortly after receiving the report, schedule a leadership team meeting to review it in detail and create an action plan that addresses everything the auditor identified across all relevant areas of your organization. Some of these actions may be simple improvements that add up to make a significant difference in your operations, while others may be more complex changes that will take time and effort to implement. Once the auditor completes their work, they’ll compile their findings into a report and present it to your nonprofit.

Financial Review vs Audit

Fulfilling the mission of the organization is a top priority for not for profit organizations. For most, this requires a leadership team that is not only flexible and focused but can effectively address various challenges simultaneously. Issues such as program development and implementation, funding management, employee recruiting, and retention and volunteer management sit atop most lists. This demand for time and energy often leaves little time to focus on the accounting and financial vitality of the organization.

• As you are committed to your mission, we are equally as committed to our clients, and their success.
• The main reason for conducting audits for nonprofits is to check the accuracy of their financial statements and ensure they are following the laws and regulations that apply to them.
• Tracking and reporting systems must capture specific financial data related to each grant, such as expenditures against budgeted categories and timeframes.
• Notwithstanding this helpful intersection of supply and demand, audits of NFPs can often present some unique—and frequently opaque—independence issues.
• While a nonprofit audit may be something your organization is required to do, it’s also a chance to confirm your financial practices are sufficient or improve upon your strategy.

Attest services rendered to not-for-profit (NFP) entities provide assurance to stakeholders as to the quality of the financial condition, results of operations, and internal controls of the NFP. These assurances are important to the public interest for numerous reasons, including the fact that NFPs often receive contributions from the general public, as well as grants and contracts from other NFPs and government entities. NFPs also represent an important market segment for public accounting firms; many NFPs traditionally have a fiscal year-end that falls outside the profession’s traditional busy season. This results in CPA firms being able to schedule the audit work for NFPs in less busy periods, save on overtime costs, and fill their staff schedules with productive work in otherwise slower periods. Notwithstanding this helpful intersection of supply and demand, audits of NFPs can often present some unique—and frequently opaque—independence issues.