Audit of Non-Profit Organization: A Checklist to Follow

Auditors must ensure transparency and integrity in financial reporting, addressing potential conflicts of interest that may arise. Strict safeguards must be established to protect sensitive information, including donor identities and financial transactions, in accordance with regulations such as the Sarbanes-Oxley Act. Ethical guidelines necessitate that auditors maintain independence and verify that contributions are disclosed accurately, upholding the trust of stakeholders, including grant providers and community members. Potential breaches of confidentiality can lead to significant legal repercussions and can damage the reputations of both the auditing firm and the accounting services for nonprofit organizations not-for-profit entity involved.

Nonprofit Audit Checklist

In its letter to management, the auditing firm approaches its evaluation from two directions. From an internal control perspective, the audit report identifies ongoing protocols and processes that deserve revision if efficiency and clarity are to be preserved. The other approach is narrower, focusing on “operating inefficiencies.” These are issues that could lead to more serious problems unless corrected. Overall, the audit ideally confirms that the organization is operating in accordance with generally accepted accounting principles (GAAP).

• An audit can serve as a financial health check as it demonstrates the nonprofit’s commitment to operating in a responsible manner.
• In preparation, the financial compilation of pertinent documents is crucial as is the brevity and honesty of answers.
• They ensure financial transparency, regulatory compliance, and the ability to demonstrate impact and success.
• A nonprofit audit is an independent examination of audited financial statements and records to ensure compliance.
• Nonprofit organizations do not pay taxes, so they are not subject to audits performed by the Internal Revenue Service.
• Click on a state in the map below to find a link to the state law that governs audit requirements (if applicable) for charitable nonprofits in that state.
• This analysis helps a Chartered Accountant to give an opinion based upon the observation made with proper implementation of a defined set of accounting and auditing compliances.

Best Practices for Long-Term Audit Success

• Nonprofit organizations can learn from this by ensuring their data is as comprehensive and categorically clear as the demographic information collected by Candid.
• The third party (usually a funder) may understand the goal of cost savings and accept a review instead.
• In some organizations, the audit committee is also the body that is designated as the “ombudsperson” for the receipt of complaints about financial management.
• Understanding the scope of a nonprofit audit is an important part of the process to ensure accuracy and compliance with reporting standards.
• Unlike for-profit audits, nonprofit audits demand deeper scrutiny of fund restrictions, donor intent, and grant compliance.
• ‍The first step to auditing a small nonprofit is to select the auditor that is right for your organization.
• Collaboration across the board is crucial, as evidenced by the Ford Foundation’s experience in addressing their website’s evolving needs.

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. Thirty-nine states (plus the District of Columbia) require charitable nonprofits to register with the state in order to fundraise in that state. Consequently, the laws that require a charitable nonprofit to submit audited financial statements also vary state-by-state.

• Clearly, the ratio should reflect solid experience with not-for-profit groups and 501c3 audit requirements.
• These may include maintaining strong internal controls and financial reporting practices.
• Holding back information or not being responsive may delay your audit or cost you more money.
• Auditors or auditing firms will look at your financial statements, internal controls, and best practices to find areas for improvement.
• Off-the-shelf accounting software does not have the proper internal controls to meet this SAS requirement.
• Adopting best practices can significantly enhance the audit process and the quality of audited financial statements.

Steps to Prepare for a Successful Nonprofit Audit

For instance, if your organization receives federal funding, you will likely need https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ to schedule an audit, even if your state does not require one. This is true whether you receive the federal funding directly or the funding is passed to you by another entity. In the Guide, you can get information about what will happen at every stage of your independent audit. As an alternative to an independent audit, auditors can provide either a financial statement “review” or a “compilation.” Neither a review nor a compilation is a substitute for an audit. However, internal audits can be an effective way for your organization to identify opportunities for improvement.

• However, nonprofit audits don’t have to be complicated if you understand, more or less, how they work.
• In addition to allowing time for selecting an auditor (maybe one to three months), you should also allow time for preparing for the audit (up to one month).
• The duration of the independent audit can vary according to whom the audit is due, board members, for example.
• “Independent” refers to the fact that the auditor/CPA is not an employee of the nonprofit but instead is retained through a contract for services, and hence is “independent.”
• Financial management software like Sage Intacct for nonprofits can take much of the stress out of the audit process.

Compliance audits investigate your organization’s obedience to federal, state, and local laws. It’s less of a financial audit (though, it normally includes that to some extent) and more of a check on compliance requirements and adherence to established bylaws. Auditors will review any laws and regulations applicable to the nonprofit sector, including tax-exempt status compliance and fundraising restrictions.

The Purpose of Nonprofit Auditing

These types of audits allow the organization to take a step back and determine if there are better ways of doing things than how they’re currently being done. Additionally, it’s a good idea to work with auditors who specialize in the nonprofit industry. That means keeping your paperwork organized, staying current on your reconciliations, tracking restricted funds, and accurately recording all your expense and revenue transactions each month. Once again, be as cooperative as possible and set aside time to work with your firm and get them all the documents they need. If you’re not available, the auditors can’t do their jobs and may even suspect that there’s something you don’t want them to find. Accounting, confirming, following up, and ascertaining business patterns allow the auditors to create a narrative of where a nonprofit stands.