Once the audit is complete, nonprofits should take time to carefully review the auditor’s findings and recommendations. This report often contains valuable insights into areas where the organization can improve its financial practices or operational efficiency. It is essential for nonprofit leaders to engage their board of directors in this review process, as board members play a crucial role in governance and oversight. For instance, an audit may uncover discrepancies in financial reporting or highlight the need for improved internal controls. By acting on these findings, organizations can not only enhance their financial practices but also strengthen their overall mission delivery.
Free Nonprofit Organization Audit Checklist
This type of audit generally addresses issues with your tax return, discrepancies between your organization’s and freelancers’ or employee returns, or if a division of the IRS issues an IRS-wide examination. Nonprofits may be surprised when they realize that the request for a nonprofit audit may come from many sources. In addition to the IRS, there are a number of different organizations and the state government too can expect audit results from your nonprofit. Some of these reasons come from external sources, but regular audits can also be an excellent long-term practice for your organization. We enjoy talking with a nonprofit’s point of contact during the proposal process. A person-to-person conversation often helps determine whether we are a good fit for them, and whether they are a good fit for us as a firm.
Successful Nonprofit Audits
A robust system of internal controls can significantly reduce the risk of errors or fraud, making it an essential component of any nonprofit’s financial management strategy. Beyond the “Single Audit,” all U.S. nonprofits are expected to adhere to Generally Accepted Accounting Principles (GAAP). While not a direct audit requirement, GAAP provides the foundational accounting standards that auditors use to evaluate financial statements.
What role does accounting software play in preparing for nonprofit audits?
Once the CPA has finished going through all of the statements and their corresponding report, they will take some time to write up their findings. They will also issue any adjusting journal entries that need to be done, as well as adjusted financial statements. At that time, the organization will be able to issue the findings to any regulating agencies as required. The CPA may also issue a letter to management with comments about accounting processes, internal controls, or areas for improvement.
- These interviews help gauge understanding of processes, controls, and significant financially relevant activities.
- To achieve that, many nonprofits undergo some level of financial examination from an independent auditor.
- The concept of restricted and unrestricted funds is unique to charitable organizations, with restricted funds allocated for specific purposes, while unrestricted funds can be used for general operations.
- It’s about selecting a partner who understands your organization, shares your commitment to transparency, and has the expertise to guide you through the complexities of nonprofit financial management.
- For many organizations, the idea of an audit conjures images of endless paperwork, tough questions and stress.
IRS Rules for Natural Disaster Aid Organizations
If your auditor requests access to your accounting system, make sure to grant them the correct level of user permissions (often view- or read-only) before the audit. Also, add all of the documents they’ll need to a centralized digital folder you can share with them. Pay special attention to the segregation of duties to ensure no single individual has control over all aspects of a transaction. Immediately after you receive the final auditor report, your nonprofit must begin making all suggested changes. These improvements may involve fundraising opportunities you weren’t aware of and expenses you no longer need. An independent auditor can give your organization an outside perspective when you feel stuck.
Sometimes state and federal laws require you to audit your nonprofit, but that’s not always the case. And even if you don’t have a legal obligation to conduct an audit, a financial examination can still be a huge boost for your organization. Off-the-shelf accounting software does not have the proper internal controls to meet this SAS requirement. For example, in QuickBooks, you can easily change a transaction even if it clears the bank, or is in closed accounting period. This article is focused on the financial audit, but it is important to understand other types of audits that nonprofits https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ may undergo including internal audits, compliance audits, and program audits.
- Choosing between an audit and a financial review is an important decision for any nonprofit.
- The Susan S. Lewis CPA firm performs audit services in Chicago and nationally.
- Proper cash flow management, planning, and annual budgeting will allow for a nonprofit to prepare for the expense of an audit.
- Less extensive than the field audit, the office or correspondence audit rarely includes a face-to-face encounter with an IRS representative.
- Unlike reviews, compilations do not include assurance or verification of the accuracy of the financial statements.
- Make sure your RFP is well organized, specific to what you need and free of redundancy.
- While one-off single audits are a great start, get on a regular cadence with annual audits.
Rather than performing extensive testing, the CPA primarily conducts analytical procedures and inquiries to determine whether the financial statements appear reasonable. Based on their evaluation of these risks, auditors should be able to develop a plan for addressing them in order to minimize any potential impact on the operations of the nonprofit organization. This involves creating controls or procedures ensuring corrective actions should any issues arise during future audits. In addition, proper documentation should be maintained in case further evidence is needed by auditors at a later date. Outsourced accounting for nonprofits is an excellent strategy for staying audit-ready, compliant, operationally efficient, and mission-focused. Your organization’s leadership and board of directors should review and discuss this document and then prepare a list of questions for the auditor.
- Here’s a rundown of what each entails and what might be best for your organization.
- A clear game plan is another factor that works in your favor when pitching to potential supporters, especially if you have a trustworthy reputation supported by verified information.
- If any errors or omissions are found, the auditor will report them to the board of directors.
- By taking proactive steps to address findings from the audit, nonprofits not only enhance their operational effectiveness but also reinforce their commitment to transparency and accountability in the eyes of stakeholders.
- Audited financial statements are comprehensive financial records that have undergone an independent examination by a certified auditor.
You should also discuss whether or not the organization is satisfied with the job performed by the auditor to begin making plans for the next audit. Nonprofit organizations do not pay taxes, so they are not subject to audits performed by the Internal Revenue Service. Audits, however, are still sometimes required for nonprofit organizations by federal, state, or local entities. Clear and comprehensive disclosures are vital for transparency and can help stakeholders make informed decisions about their support for the organization. By prioritizing both accuracy in financial statements and thoroughness in disclosures, nonprofits can present a complete picture of their financial health during the audit.
Get our FREE guide to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. Thorough audit preparation makes a nonprofit audit run smoothly, reducing your stress and the time to complete the audit. This checklist will help you be ready for your nonprofit audit so you can catch–and resolve–potential issues in your financial documents. Preparing for an audit also helps ensure the accuracy of your financial records, which can help reduce discrepancies found by the audit.