At the same time, many large donors, foundations, or other sources of funds may request or require audited financial statements. These statements help them have confidence in the reported financial health of the organization. The purpose is to discover opportunities for improvement and determine if there are better ways to do things than how they’re currently being done. Essentially, internal nonprofit audits allow your organization to take a step back from everyday tasks and determine the best course of action to move the nonprofit forward. Generally, it’s discussed in a financial sense, but audits can refer to internal analysis of operations, external parties reviewing your finances, the analysis of your adherence to compliance requirements, and more.
These steps include information gathering, testing of records and transactions, and then the rendering of an opinion. This is because the auditor will have a comprehensive understanding of the nonprofit’s operations and can offer suggestions on how to improve them. These suggestions can be anything from improving financial controls to increasing fundraising efforts. Lastly, an often overlooked benefit of the nonprofit audit is that it can provide constructive recommendations for improving the organization’s operations. RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent assurance, tax, and consulting firms.
Nonprofit Standard Newsletter – Fall 2023
Because state laws vary in the scope of their regulation of charitable nonprofits, this Guide includes a 50-state chart that shows whether there is an audit requirement in each state, and if so, under what conditions. This Nonprofit Audit Guide will help you understand what independent audits are, and help you prepare your nonprofit for an audit. During these audits, your auditor will review your organization’s various financial statements and reporting to determine opportunities that will help improve the financial health of your organization. They’ll also examine your internal controls to ensure the security of your finances.
The main purpose of the nonprofit audit is to provide reasonable assurance that the financial statements are free of material misstatement. Learn about the duties of the audit committee and ensure that your organization has the resources and capacity to effectively manage the financial and compliance reporting process. Unfortunately, one size does not fit all when establishing the size and structure of an audit https://www.bookstime.com/articles/part-time-bookkeeping committee. The committee must understand the organization’s unique programs, operations and governance policies to be a sufficient check and balance over management. The Nonprofit Audit Guide will NOT, however, help you identify an independent auditor. For that task we recommend you connect with the CPA society in your state which may maintain a list of CPAs experienced in audits of tax-exempt organizations.
Surviving an Audit
Rather, it’s an opportunity to learn about how your organization can continue to improve its processes. These improvements may be simple actions that amplify to create a major impact, or they may be more complex changes that will take hard work and focus. These discussions can help your committee and organization leaders learn more about the audit itself and prepare for any questions that may arise from the board when you audit guide for small nonprofit organizations present the management letter to them. You should make sure you have as much information upfront as possible to assure board members that you’re taking the audit seriously and determine the next steps coming out of it. The timing of your nonprofit audit heavily depends on the requirements of the organization to which you’re submitting the results. This should be the first place you look to see when it should be conducted.
- Ask your network for recommendations if you don’t know a firm and try to get someone lined up at least 6 months in advance.
- While the preceding quotation was written in a business context, a well-functioning audit committee is important to every nonprofit organization as well – for the very same reasons noted.
- Audit committees are vital to the health of any nonprofit, be it large or small.
- Some foundations may request audited financial statements during the grant application process.
- We won’t deal with other types of nonprofit audits, like compliance audits or governmental audits, which can differ in certain respects.
- Also, regular audits can help your organization receive more funds by encouraging accountability and transparency with your donor base.