When a nonprofit audit is conducted by an independent auditor, its goal is to assess the organization’s overall health and ensure compliance with federal, state, and general financial regulations. As we mentioned, many foundations and government organizations will want audited financial statements when applying for grants. Some nonprofit organizations might choose to disclose their financial statements. Your IRS Form 990, however, is always available to the public — including donors, who often use Nonprofit Explorer to vet their causes. An accounting professional examines financial statements to determine whether they conform to accounting standards.
The Beginner’s Guide to Nonprofit Auditing (Free Checklist + FAQs)
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. This article will discuss financial statement audits for nonprofit organizations. We won’t deal with other types of nonprofit audits, like compliance audits or governmental audits, which can differ in certain respects. A formal audit, performed by an independent auditor, provides an impartial assessment of your financial statements and internal controls.
Best Practices for Long-Term Audit Success
An audit can provide valuable insights into your nonprofit’s financial health and help to identify any areas of weakness or governance needs in order to reduce the risk of potential fraud. As a whole, the audit process takes approximately, 8-15 weeks depending on the size and complexity of the organization. Compressed timeframes could achieve audit completion in as short as 4-6 weeks.
Not sure if you meet the requirements for a nonprofit audit? We can help you figure that out.
- Nonprofits that receive less than $500,000 a year can agree to waive both audits and financial reviews, again through an extraordinary members’ resolution.
- Generally, the IRS issues a closing letter at the end of a compliance check, but not at the end of a compliance check questionnaire.
- Bank statements are essential because each and every account must be reconciled in a way for which every penny is accounted.
- Auditors will review your financial statements and assess the accuracy of their reporting.
- IRS Exempt Organizations department maintains an active compliance check program.
- To achieve this level of understanding, nonprofit audits should conduct regular audits.
Although you’ll need to put in effort to prepare beforehand and apply the auditor’s recommendations afterward, the benefits of financial auditing typically outweigh these costs. For the purposes of this article, we’ll primarily focus on independent financial audits—just don’t be surprised if your nonprofit undergoes one of the other types at some point. Nonprofits that do this will hire an auditor for a complete review of their financial records.
Key Differences in Nonprofit Auditing
Nonprofits must establish robust compliance frameworks to adhere to these stipulations, safeguarding future funding opportunities and maintaining credibility with grantors. Recovery Connect scaled their nonprofit with Instrumentl, streamlining grant management and eliminating inefficiencies. This article explores how the platform helped amplify their mission, allowing the team to focus on empowering individuals overcoming substance use disorders and achieving new milestones. Additionally, it’s a good idea to work with auditors who specialize in the nonprofit industry.
What are the nonprofit audit requirements? And is your organization required to have one?
Some smaller or newer organizations are fiscally sponsored, which means that they are projects or organizations that do not have tax-exempt status. Rather, a larger 501(c)(3) receives donations on their behalf and transfers the funds through a “grant” to them. Fiscal sponsors will https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ list their fiscal sponsorships in their 990s and some may even provide itemized donation information for their fiscal sponsorees. The easiest way to find financial information about a fiscally sponsored organization is to search the sponsor’s Form 990.
Which makes it easier for you to attract larger donations, apply for grant funds, and access lending facilities. In this article, we’ll take a look at what an independent financial audit is and when your nonprofit might need one. And we’ll also look at your less-expensive alternatives for establishing financial credibility with your stakeholders.
Audits performed by independent auditors or firms can be time-consuming and costly, but you can reduce the stress of the process by preparing as many items as possible on the following checklist. A compliance audit is a preferred way to evaluate a nonprofit’s compliance with federal, state, or local government regulations. Some organizations undergo a compliance audit to confirm they are following the processes and guidelines set by the nonprofit’s board policies. Most organizations strive to avoid a nonprofit audit, but the fact is sometimes you can’t or shouldn’t avoid having a financial audit of your nonprofit organization done. In this article, we discuss nonprofit audit best practices and explain some helpful information to help you prepare for your next nonprofit audit. The cost of a nonprofit audit varies depending on the size and complexity of your organization.
Prepare for the Auditor’s Visit
The requirement may depend on the size of the organization, funding sources, and regulatory requirements. Check the bylaws created by the founder or board members of your organization. Some nonprofits have written instructions about the frequency and types of audits to be performed.