Nonprofit Audits: A Guide to Ensuring Financial Accountability

Read about the best practices of highly effective nonprofit organizations in the attached April 2024 issue of Insights, a publication of HBK Nonprofit Solutions. We hope you find Insights as interesting as it is informative, and we welcome your thoughts and input via the author contact information provided with each article. Year-end financial statement audits serve a valuable purpose in helping maintain the financial integrity of not-for-profit organizations so they can successfully complete their missions. These audits can be more effective and less challenging with a little bit of preparation and planning on the part of the not-for-profit management and finance team. Auditors will also review the organization’s policies and procedures, including its operations and management. They will look at any documentation provided by the nonprofit to ensure that it is accurate and complete.

If your nonprofit is required to submit your audit results to a government agency or reporting organization, you should, of course, complete the audit well in advance of the deadline. However, preparing for an audit takes time, which you’ll need to factor into your decision for when to conduct it. However, internal audits can be an effective way for your organization to identify opportunities for improvement. You might find better ways to do your financial reporting or identify valuable cost savings. An internal audit is a chance to step back, see the bigger picture, and look at your nonprofit’s history and trajectory.

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Welcome to the April 2024 issue of Insights, a newsletter from HBK Nonprofit Solutions designed to help you navigate the financial challenges of operating a nonprofit organization. Your organization’s development team assigns an audit committee to perform internal audits. Donorbox is an all-in-one online fundraising platform for nonprofits of all sizes. Our simple-to-use and powerful features range from Donation Forms and Fundraising Pages to Recurring Donations, Crowdfunding, Peer-to-Peer, Events, Memberships, and more. You can also easily store and manage your donor and donation data on Donorbox.

How to Audit a Small Nonprofit Organization

At the very least, establishing internal review procedures will help protect your nonprofit from risks and promote financial responsibility. Compliance audits investigate your organization’s obedience to federal, state, and local laws. It’s less of a financial audit (though, it normally includes that to some extent) and more of a check on compliance requirements and adherence to established bylaws. There are a few situations where your nonprofit organization may be required to conduct an audit. For example, your state might impose audit requirements if your income and spending exceed a certain threshold.

‍Compliance audits review your organization’s adherence to regulations and requirements set by the federal, state, and local governing entities as well as your bylaws and other compliance requirements. All businesses — nonprofit organizations and for-profit companies — need to use either cash or accrual accounting in their bookkeeping. A poorly prepared financial report can lead to incorrect financial information being shared with management or board members and inaccurate reporting to the IRS.

How to Choose a Nonprofit Auditor

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. By taking the necessary steps to implement any improvements suggested by the audit report, nonprofits can further the success of their organization and mission. ‍Generally, the auditor will be responsible for providing an Engagement Letter. An Engagement Letter outlines the terms of the audit, including the nonprofit audit cost and timeline. 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.

• “The City has a vested interest in HomeRise remaining a viable housing operator for its existing tenants and a developer of low-income housing in the future,” auditors said.
• The IRS typically issues a closing letter at the end of a compliance check, but not at the end of a compliance check questionnaire.
• Partner with the experts at Jitasa to make the most of your nonprofit audit experience.
• The duration of the independent audit can vary according to whom the audit is due, board members, for example.
• For instance, a nonprofit that is funded primarily through private donations needs to track funds much differently than a nonprofit that receives grants on a regular basis.

Use Google to find at least three options (based on reviews and portfolios) for CPAs or auditing firms that work with nonprofits. During the research process, your auditing committee must have a clear idea of how long the audit will take and how much working with the auditor will cost. The best way to determine this for each option is by asking for a request for proposal (RFP).

Financial audits help determine how well an organization is abiding by accepted accounting principles and can also provide a comprehensive picture of an organization’s financial health in general. An independent audit reviews financial statements, how to audit a non profit organization including your nonprofit’s statement of financial position, related statement of activities, cash flows and notes to the financial statements. With FastFund Accounting, you can generate all the required financial statements.

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. It demonstrates to donors, members, directors, and regulators that the firm does its work transparently, comprehensively, and above board, and thus, the public has more confidence in the non-profit. A financial audit by an independent CPA is performed methodically and according to rigorous criteria. One step leads to the next so the nonprofit firm has a full picture of its financial health. Less extensive than the field audit, the office or correspondence audit rarely includes a face-to-face encounter with an IRS representative.