Implementing and making changes to your processes and internal controls after an audit can help make future audits even more successful and ease the stresses that these can cause. In the nonprofit world, audits are a normal course of business and should not be something to be nervous about. As soon as you know that you will be obtaining an independent audit, begin the planning process. Once you’ve selected an auditor, they should provide information about preparing for the audit.

Review Financial Statements

Compliance audits verify the nonprofit’s adherence to all relevant laws, regulations, and internal bylaws. These audits ensure that the organization meets federal, state, and local requirements, as well as any grant-specific conditions. Compliance audits are crucial for avoiding legal issues and maintaining good standing with regulators and funders. Internal audits are conducted by the nonprofit’s management to improve operational efficiency and ensure that internal controls are functioning effectively. These audits focus on evaluating operational processes, financial controls, compliance with internal policies, and risk management practices. The goal is to identify areas for improvement and implement best practices.

Detailed State-Specific Requirements

As you’ve probably learned by now, taxes are an inevitable part of doing business in the United States. While most focus generally lies on federal and state income taxes, there’s also a third aspect—payroll taxes. Pay special attention to the segregation of duties to ensure no single individual has control over all aspects of a transaction. Audits help identify inefficiencies, protect against fraud, and demonstrate credibility. Independent audits show donors and investors that your organization takes financial integrity seriously.

Charity and nonprofit audits

After all, raising and disbursing funds is sometimes a tedious, monotonous business. Hiring a professional CPA to conduct an independent audit highlights points in the process where details fall through the cracks. So, an independent auditor serves as a means of quality control, helping to avoid backtracking and embarrassing admissions of errors later. Some nonprofits do not conduct an audit annually, but instead conduct one regularly every few years (or whenever there is a significant change in the organization’s operations).

A certified public accountant familiar with nonprofit accounting practices can provide an objective view of your organization’s financial statements, policies, and internal controls. To guarantee that your organization meets relevant standards, select an auditor with experience in the nonprofit sector. The obligation to file an independent audit report with the state government is generally just one requirement among many in connection with charitable solicitation registration.

You’ll also want to verify that donor restrictions are properly documented and adhered to when using funds. Remember, to keep copies of all documentation received with your gifts (donor acknowledgement letter, cancelled check, grant agreements, etc.). Finally, being prepared for your audit shows a level of professionalism that helps protect your nonprofit’s reputation with the public. However, preparing for an audit can be overwhelming if you don’t have the right guidance.

Audits and Reviews for charitable organizations

Classy’s comprehensive fundraising platform  offers unified giving tools that help optimize the donation process. In fact, 95% of Classy’s customers choose our platform year after year for the highest-quality solutions. Having a third-party perspective (someone paid to accounting services for nonprofit organizations do the audit) means you’ll receive objective advice from someone less likely affected by relationships or emotions. They’ll provide you with actionable recommendations and let you know when you need to change a certain practice.

Are Nonprofit Audits Public Record?

• 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.
• It takes a special kind of person to run a nonprofit business, but here you are!
• For instance, states like New York and California mandate audits for nonprofits with gross annual revenue or contributions exceeding specific thresholds.
• As a nonprofit organization, it’s a good idea to prepare your financial statements and documents for any 501c3 audit requirements that may arise.
• For example, if your nonprofit is based in California and you have a gross income of $2 million or more, you will be required to get annual audits.

James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site. If you’re unsure about which assurance product is the right fit for your needs, your CPA firm can help you determine the best approach for your organization. These can cover programs like short- and long-term disability, workers’ compensation, paid medical or family leave and more.