Nonprofit Audit: Guide to Preparation and Requirements

Nonprofit Audit

It’s recommended that you reconcile your bank accounts on a monthly basis. Reconciling accounts on a regular basis ensures errors are identified and can be attributed to a specific timeframe. Otherwise, errors may accumulate and make future reconciliations more challenging. The timeline below is an example of the potential time that your organization can expect to spend on various activities.

Nonprofits must provide a minimum of five years’ worth of documentation for the auditor to review. The audit will examine the organization’s financial statements, including income and expenses , as well as any other relevant information that may be requested by the auditor. These financial statements are used by NFPs, donors and granting agencies, “watchdog” groups who monitor charitable organization activity, financial institutions, oversight agencies, and the media.

Nonprofit Audit Report

Make sure that the auditing firm you choose has an extensive background working with nonprofit organizations so that they can fulfill the specific requirements for 501 organizations. Independent audits are a topic of frequent discussion amongst charitable nonprofit organizations. Nonprofits Nonprofit Audit are often required to get an independent audit for many different reasons. However, for some nonprofits there is no requirement for an independent audit to be conducted. In these cases, the question is raised as to whether it would still be beneficial to receive an independent audit.

Every CPA firm has a couple of nonprofit clients they handle, but this does not make them experts. An audit starts with the initial contact and continues until a closing letter is issued. A compliance check or compliance check questionnaire starts with the initial contact. The IRS may contact the organization again if the IRS needs further information, or if the organization does not respond to the compliance check or questionnaire. The IRS typically issues a closing letter at the end of a compliance check, but not at the end of a compliance check questionnaire.

Other State Audit Regulations

Download or print a PDF version of this guide to keep it easily accessible as you prepare for an audit. In 2018, private contributions to nonprofits exceeded $420 billion.

CPAs serving nonprofit clients have relied on PPC’s Guide to Audits of Nonprofit Organizations for more than 30 years. We’ll send a consolidated invoice to keep your learning expenses organized. We’ve created the BDO Library as a “go to” source for informative and thought provoking knowledge resources. Center for Business Innovation When it comes to business, innovation is changing everything. BDO is continuously finding new ways to help your organization thrive. Crisis Response Resource Center BDO is here to help your business – and you – persevere through crises, prepare for recovery, and once again thrive.

Nonprofit Impact Matters

If many payables and receivables have not cleared in the past 90 days, you should immediately review these issues. This will help you determine any cash obligations, potential vendor disputes, and overall cash management strategies. Nonprofits need to categorize material and immaterial assets properly.

Nonprofit Audit

In addition to increased internal adherence to best practice accounting methods, annual independent audits strengthen your internal accounting controls. While not a guarantee, ill-intentioned staff or volunteers are less likely to commit financial fraud if they know annual independent audits will take place. Some states require nonprofits to provide a copy of their independent audit when they register with the state to legally conduct fundraising activities. With over 17 years working exclusively with nonprofits, we pride ourselves in having a unique understanding of nonprofit accounting needs. We believe that nonprofits deserve personalized, quality service and should not settle for a one-size-fits-all approach. We collaborate with you to provide a fully virtual and customized solution that is not only cost-effective but also strengthens your accounting function.

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How much of your total budget was spent on administrative costs and how much was spent on program services? The length of the audit will depend on the size and complexity of the nonprofit.

Nonprofit Audit

We focus 100% of our audit capacity on the not-for-profit community. Accountants generally will compare prior and current year results, obtain bank statements, and question management about any unexpected results. The organization operates for purposes other than to make a profit. Continually evaluate your record keeping to identify opportunities for improvement. Prepare electronic and hard copies of an “audit binder” with standard documentation for bank accounts, investment accounts, fixed assets, payroll, and so on.


Annual independent audits are one way to assure stakeholders that your financial statements are reliable. While your nonprofit can pull reports that show the final allocations of time spent on various mission-related activities and projects, the auditor will want to check your work. Therefore, in addition to showing them the final math, you should also present your raw timesheet data. Kathy is a CPA with over 30 years of experience in various leadership roles in nonprofit communities, including CFO of the Brain Trauma Foundation. Her passion for nonprofits led her to focus her energies on working with nonprofits both in program operations and finance. Kathy heads up client advisory services, bringing expertise in accounting, grant compliance, and operations analysis.

Nonprofit organizations routinely receive donations from private foundations, and these foundations will likely expect the nonprofit to undergo an independent audit at some point. The first major difference between an independent audit and an IRS audit is that you won’t have an IRS agent showing up at your organization’s offices.

Audits and Reviews for charitable organizations

Nonprofit financial audits are performed by outside public accounting firms to verify that nonprofits comply with federal tax laws and regulations. The IRS and the nonprofit’s board of directors also use financial audits to ensure that nonprofits are in compliance with all laws, regulations and their governing documents. Regulations for charitable nonprofit organizations can vary from state to state. Because of this, the Nonprofit Audit Guide includes a chart that details the audit requirements for all 50 states.

Nonprofit 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. As the client, once you have met the requirements for each step, you can expect the auditors to honor the timeline too. At the agreed-upon date for delivery, auditors should provide the draft audit report and a letter to management, which recommends areas for improvement and notes deficiencies in internal controls. Before the findings are presented formally, there should be a discussion between the auditor, management, and the audit committee.

We perform an audit, provide training, and help you every step of the way. Our team members are available for questions and consultation by telephone and email throughout the year, not just during tax season.

Some grant funders require nonprofits to conduct audits to ensure their financial systems are trustworthy, transparent, and well-managed. Even if granting institutions don’t require an audit, they may require other proof of financial management before they’re willing to provide funding. But other entities may require your organization to conduct an audit. For instance, some separate state or federal agencies may require an audit from your nonprofit depending on your size or spending habits. Or, grant organizations may require one to prove your financial responsibility before providing funding.

How much does an audit cost?

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. Therefore, it’s essential to understand the types of nonprofit audits. Zation is using off the shelf accounting software, likeQuickBooks for Nonprofitsor Peachtree, even their nonprofit versions, it is likely that more audit findings will be reportable.

The SAS clarifies that the significance of a control deficiency is dependent on the potential for a misstatement, not whether a misstatement actually occurred. All of this translates into increased audit fees, the potential for negative reports in your audit and the risk of losing funding from your funding sources. Federal, state and local governments may request a copy of the nonprofit’s audited financial statements. An audit is not required for small nonprofits but it is highly recommended because it provides a third-party assessment of the organization’s financial records and practices. Of course, you’ll want to get the perfect audit results back, but it might not always work out that way. You might have some next steps to implement to ensure proper internal controls and financial structure at your organization.

National nonprofit financial database lets you compare your nonprofit organization to national averages and peer groups. The heart of compliance is the audit and we know that fiscal integrity is essential for long-term fiscal health in a nonprofit.

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