First, this isn’t the same as an IRS audit–it’s not an “I’m being audited! Regular audits will keep your Board of Directors and employees accountable for their decisions. One or a group of IRS agents show up to your organization and begin to file through your financial paperwork. Learn about Yellow Book Audits, when they’re required, and https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ who needs them.

What is the purpose of a nonprofit audit?

These suggestions can be anything from improving financial controls to increasing fundraising efforts. If the auditor finds any weaknesses in the internal controls, they will report them to the board of directors. In its letter to management, the auditing firm approaches its evaluation from two directions.

• We’ll help clean up your books and implement state-of-the-art systems to save you time and bring your accounting department into the 21st century.
• While the full board retains oversight authority, the audit committee’s smaller size allows it to carry out its responsibilities in a more manageable environment.
• For example, if the audit highlights gaps in financial reporting, update the financial policy to include more rigorous documentation and review procedures.
• The audit helps to hold the organization accountable to its directors, its investors, and its donors.

What is an audit committee?

For a not-for-profit corporation, the policy only needs to be distributed to volunteers who provide substantial services. Audits help identify inefficiencies, protect against fraud, and demonstrate credibility. Independent audits show donors and investors that your organization takes financial integrity seriously. All in all, a financial audit helps you hold your organization accountable to your mission, build trust with the outside world, and access money to pursue your goals.

• Donors need to trust an organization before they contribute a one-off gift or recurring funding, and an independent audit provides them with that much-needed reassurance.
• Our simple-to-use and powerful features range from Donation Forms and Fundraising Pages to Recurring Donations, Crowdfunding, Peer-to-Peer, Events, Memberships, and more.
• “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.”
• Processes like authorization of expenditures, segregation of duties, and access controls are included in this examination.
• And it gives the board and leadership the peace of mind that your books are accurate and reliable.

Steps in Auditing a Small Nonprofit Organization

Smaller nonprofits may also be subject to audits if they trigger certain IRS thresholds or if discrepancies arise in their The Key Benefits of Accounting Services for Nonprofit Organizations tax filings. Typically, non-profits are only required to file a charitable solicitation registration if they plan to undertake fundraising activities. This registration allows the organization to legally participate in fundraising in the state where it is seeking donations. In most instances, the non-profit must complete registration before engaging in any fundraising or solicitation activities.

Compliance Audit

• Most states’ regulations highlight the significance placed on transparency and accountability within the non-profit sector.
• Beyond these contingencies, any time nonprofit organizations seek abatement or money back from the IRS, an IRS agent may count these as red flags and invoke the audit process.
• There are no sanctions or penalties if an organization passes on the compliance check questionnaire.
• As a nonprofit organization, it’s a good idea to prepare your financial statements and documents for any 501c3 audit requirements that may arise.
• The audit committee may also be delegated the authority in its charter or by board resolution to investigate/resolve any concerns about financial controls and to proactively take steps to prevent financial mismanagement.

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. Once your organization has decided to obtain an independent audit, the real work begins. Taking steps to make sure that you are working with the right audit Firm is important.

Level of financial review

An independent audit may be among the nonprofit audit requirements for those enterprises receiving federal funding. Congress to assure compliance with rules governing federal grant management standards and nonprofit organizations, particularly those that spend more than $750,000 of said funds annually. The same legislation advanced consistent procedures to conduct an independent audit of a nonprofit organization. Recipients of government contracts may also fall subject to financial review, i.e., they must submit audited financial statements upon request of the agency that awards the contract. Other firms that benefit from federal loans, food donations, real estate conveyance, and subsidies can likewise produce an independent nonprofit audit for government agencies.