PPC’s Guide to Audits of Nonprofit Organizations: Checklists & Guidance

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. In addition to all of the inherent benefits of conducting a nonprofit financial audit, there are also charity watchdogs who provide information about charities to potential donors. These watchdogs may rank your organization higher if you’ve conducted an audit.

• Your board will give the auditing committee authority to oversee all audits, including hiring and evaluating an independent auditor.
• Auditors will review your financial statements and assess the accuracy of their reporting.
• It can help to ensure compliance with laws and regulations, reduce the risk of fraud or other financial irregularities, and improve your overall financial health.
• In fact, nonprofits are required to disclose their financial information to the public in a number of ways.
• This type of audit is often used to verify the accuracy of financial statements and other documents.

Second, an independent audit gives the Board of Directors more confidence in the organization’s financial management. By engaging a third-party expert to examine the financial records and processes, the Board can be reassured that the organization is adhering to best practices and maintaining accurate financial records. The independent audit allows the Board to focus on strategic planning and mission-related activities, knowing that the organization’s financial health is sound. Before issuing the final audit report, the auditors will issue a draft of the audited financial statements and any necessary audit adjustments. You should meticulously review each proposed reclassification or adjustment to ensure they are reasonable and accurate.

Audit technique guides and technical guides for organizations exempt under IRC Section 501(c)(

Using this chart, you can determine if your state requires independent audits of nonprofit organizations and under what conditions these audits will take place. Last but not least, conducting an independent audit can help meet the requirements of some private foundations for grant eligibility. Many grant-making organizations require non-profits to submit audited financial statements as part of their grant applications. Through an audit, non-profit organizations can broaden their potential funding sources and demonstrate their commitment to financial best practices. 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.

Nonprofits that spend more than $750,000 in federal funds in a year also must undergo an audit. If you are registering a nonprofit charitable organization in one of 26 states, you have to file audited financial statements before your organization will be legally allowed to fundraise. In some states, nonprofits must conduct an audit if they receive state funding.

What Is a Nonprofit Audit

You’ve decided who you’ll be working with for your nonprofit financial audit. You’ve put in the work and the research necessary to be sure you’re working with a reliable firm that understands your organization’s needs. You know what you’ll be receiving from them and can rest assured that everything is taken care of. You’ll audit guide for small nonprofit organizations still want to practice financial responsibility and accountability by carefully reviewing your financial statements or hiring a nonprofit accountant to do it for you. Internal review procedures and internal audits will help protect your nonprofit from scams, overspending, and other financial missteps you may encounter.

One-third of states in the US require regular audits for nonprofits that solicit funds from the state’s residents. Many states also require nonprofits to perform an audit when renewing their nonprofit registration once they reach a specific revenue. If your nonprofit relies on grant funding, you’ve probably noticed that these organizations want financial reports that have been audited. The federal government is not the only one that requires regular audits by nonprofits. One-third of all states in the US need nonprofits to perform regular audits if they solicit state residents. Additionally, the Guide includes information about special audit requirements that apply to nonprofits that receive funding from the federal government.