Audit of Non-Profit Organization: A Checklist to Follow

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• Donorbox is an all-in-one online fundraising platform for nonprofits of all sizes.
• Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits.
• Control deficiencies are categorized as deficiencies in design or deficiencies in operation.
• The federal government uses the terminology “contract” to refer to agreements between the federal government and nonprofits that address funds used by the nonprofit to purchase goods or services for the purchaser’s own use.
• Looking to streamline audit preparations and enhance overall non-profit management?

Conduct the audit

If your nonprofit relies on grant funding, you’ve probably noticed that these organizations want financial reports that have been audited. After you’ve reviewed the audit report, it’s time to implement any changes or improvements that have been suggested. This could involve updating your policies and procedures, increasing internal controls, or instituting new processes.

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The audit report serves as a stepping stone to future actions, leading to post-audit implementation and improvement. Filing your organization’s 990 returns can be daunting, but it’s a critical component of maintaining your nonprofit status. To avoid common pitfalls, such as omitted income, ensure all financial information is accurate and reviewed by board members or the Executive Director. Deadlines are paramount, and proper checks can prevent filing errors and uphold accountability. Incorporating these audits into regular practice can be invaluable for nonprofit organizations, ensuring that they not only meet but also exceed the expectations of their donors, stakeholders, and the communities they serve.

Does our nonprofit need a “Single Audit”?

• In fact, one or more IRS agents may participate, depending on the size of the nonprofit organization.
• To begin preparations, it’s essential for an organization to select a qualified audit firm with expertise in nonprofit accounting.
• Be prepared to address the impact of any modifications to existing grants increasing funding as the indirect costs may be limited.
• Accounting software designed for nonprofits, such as Araize FastFund Accounting, helps maintain accurate financial records, track fund restrictions, and ensure compliance with accounting standards.

Nonprofit audits typically include evaluating internal controls, analyzing financial data, and assessing risks. 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. Note that nonprofit organizations are generally organized and operated as both nonprofit and tax-exempt entities.

Furthermore, any undeposited funds that are held by the organization require identification and tabulation. Sound financial practices demand that the enterprise works from a sufficient base of capital, a reality that an independent audit will confirm or question. Ledgers and financial statements are checked and re-checked in search of duplications, omissions, or mathematical miscalculations. Examining successful nonprofit audits can provide valuable insights into best practices and effective strategies. These real-life examples illustrate how different organizations have navigated challenges to produce accurate and reliable audited financial statements.

The revenue thresholds differ depending on the state, so be sure to check out this state chart to see what the audit requirements are in your state. Common reasons why you might conduct a nonprofit audit are to improve your charitable organization’s financial position, transparency, accountability, and bookkeeping practices. In short, it helps you keep track of your donations and expenses and ensures no malpractice behind closed doors. At the end of the audit, the auditor provides an opinion on the accuracy and reliability of your financial statements. This opinion can be unqualified (a clean opinion), qualified (with some exceptions), adverse (significant issues), or a disclaimer (inability to form an opinion due to lack of information).

This will usually come in the form of a Provided by Client (PBC) list, which ensures you give them access to all of the documentation they’ll need to effectively assess your nonprofit’s finances. Your organization’s Form 990 filing deadline is the 15th day of the fifth month after your fiscal year ends (May 15 if your fiscal year follows the calendar year like most nonprofits). 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. If your nonprofit is required to submit your audit results to a government agency or grantmaker, you should, of course, complete the audit well in advance of the deadline. If your audit is optional, you can simply consider when your team will have adequate time to prepare for it and implement the recommendations. Your auditing committee should include at least one or more financial experts with knowledge of GAAP principles and financial reporting requirements.

It enhances credibility, identifies improvement opportunities, and ensures legal and regulatory compliance. Audits contribute significantly to the sustainability of nonprofits, enabling them to make a greater impact on the communities they serve. Incorporating different types of audits into regular practice helps nonprofits exceed expectations and fulfill their missions. Throughout the audit preparation process, it’s crucial for all members of the organization to collaborate and support the effort. This not only makes the process more efficient but also fosters a culture of compliance and transparency that can strengthen the organization’s credibility and capacity to fulfill its mission. They are an integral part of ensuring that nonprofits like the Literacy Lab and Cultural Survival remain effective, accountable, and true to their missions, ultimately leading to a more equitable and just society.