Internal control weaknesses often surface in smaller nonprofits where limited staff handle multiple financial functions without adequate oversight. Just as a nonprofit funding strategy must be aligned with an organization’s mission, audits help ensure that financial practices are in keeping with its purpose, goals, and vision. The word “audit” may evoke images of IRS agents swarming your office, but the reality for most nonprofits is much less frightening.

Review the Audit Report Carefully

That means keeping your paperwork organized, staying current on your reconciliations, tracking restricted funds, and accurately recording all your expense and revenue transactions each month. The audit firm will come in to review your final end-of-year numbers and all the documentation they need to complete your audit. The audit firm will do preliminary testing, familiarize yourself with your organization and ask for additional documentation. Without consistent donations and support from staff and volunteers, even organizations supporting the most noble causes can be forced to close their doors. A comprehensive financial software stack can help you keep your finger on the pulse of all these questions.

Auditor Selection

• It covers an organization’s financial statements to ensure they accurately represent the organization’s activities.
• While it does evaluate the accuracy of financial records, no professional opinion is given on that accuracy.
• If the auditor finds any non-compliant transactions, they may be reported to the board of directors as findings of the audit.
• Assurance is an opinion given by a CPA on the accuracy of an organization’s financial statements.

These are conducted by staff within your organization and can help identify opportunities for improvement in many different areas. Internal audits allow organizations to remove themselves from everyday tasks and take a look at the big picture https://nyweekly.com/business/accounting-services-for-nonprofits-benefits-and-how-to-choose-the-right-provider/ to more effectively and efficiently manage their operations and achieve their mission. Contrary to popular belief, most audits are not conducted to detect a problem.

What is the audit timeline?

They are actually useful tools to ensure that an organization is in compliance and can also be used to identify potential problems before they become too big. Whether it’s an IRS audit, external audit, or even an internal audit, the process can feel burdensome and worrying. The purpose of a nonprofit audit is to help your organization operate more efficiently. While the alert of a scheduled audit sounds intimidating, just follow the steps outlined in this checklist. An audit can produce constructive feedback that can increase the productivity of your nonprofit and help you reach your Top Benefits of Accounting Services for Nonprofit Organizations You Should Know goals.

• 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.
• Not all nonprofits are required to undergo an audit, but there are specific circumstances when it may be necessary.
• Requirements for the submission of audits or reviews are based on the gross support and revenue of the organization for the fiscal year covered by the filing.
• The Office of Foreign Assets Control at the US Department of the Treasury maintains a list of individuals and organizations who have been sanctioned in some way.
• Once the search has been narrowed down, the audit process begins when the nonprofit send an RFP to a few preferred firms.

The purpose of a nonprofit audit is to ensure you’re spending money in accordance with the guidelines set forth by your organization’s 501(c)(3) status (charitable status). When you file for charitable status, you submit your nonprofit’s mission statement, and an audit’s purpose is to track how much of the funds you receive actually get spent on your mission as opposed to overhead costs. The Nonprofit Audit Guide will NOT, however, help you identify an independent auditor.

• A nonprofit accounting audit is a detailed review of a nonprofit organization’s financial statements, accounting records, accounting procedures, and internal controls.
• IRS Exempt Organizations department maintains an active compliance check program.
• If you submit audited financial statements to donors and other sources, they will give your grant requests greater weight than those applications without such evidence of financial health.
• Audits can also be helpful in identifying areas where your organization can improve its financial practices.

Financial Review vs Audit

An auditing committee is optional if you have a finance committee, but it may help your organization keep up to date with internal and external audit requirements. Finally, nonprofits that understand the benefits of audits will include this requirement in their organization’s bylaws, making this mandatory each year. The federal government is not the only one that requires regular audits by nonprofits.

Best Practices for Long-Term Audit Success

But without at least a financial review, you’re probably out of luck when it comes to most grants. But the primary difference between a financial review, a financial compilation, and an audit is the level of “assurance” they provide. All in all, a financial audit helps you hold your organization accountable to your mission, build trust with the outside world, and access money to pursue your goals.

Is your documentation ready?

You will be asked to upload all requested items to our document portal and any questions or clarifications may be asked and answered electronically. There are only a few occasions where we may need to visit your office, such as fieldwork. However, even traditionally “on-site” activities like fieldwork may also be conducted remotely through video conferencing and digital access to your accounting records. Whether your organization prefers a fully remote audit or not, it’s important to discuss your expectations with your audit firm. Running an impactful nonprofit that makes a tangible difference in the world relies heavily on ensuring its financial, legal, and operational areas are as compliant and efficient as possible.