PPC’s Guide to Audits of Nonprofit Organizations: Checklists & Guidance

If your nonprofit does not meet any of the criteria above, an audit is likely not required unless your state has different criteria. We’ll answer the question of whether audits are required or optional and then understand how much audits cost, how long they take, and why you might want to pay for an audit even if it is not required. Our robust donation management software protects donor data and streamlines donation reporting and analytics to ensure accuracy and time-savings for everyone involved.

You should make sure you have as much information upfront as possible to assure board members that you’re taking the audit seriously and determine the next steps coming out of it. This means you’ll need to pull together some documentation and reports that your auditor will be using during the auditing process. Having these ready to go will help them analyze these documents quickly and find actionable information for improvements.

Financial Review vs Audit

To ensure that the audit process is objective, ideally an audit committee is as independent as possible, which is accomplished by having volunteer board members serve on the audit committee. (The committee would not be independent if someone who is employed by the nonprofit or audit firm served on the committee). An audit committee is either a task force or a standing committee that has been given authority by the board of directors to provide accountability for the nonprofit’s independent audit. 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. The committee is not involved in the nonprofit’s daily accounting functions, but instead oversees the independent audit process which often entails hiring and evaluating the independent auditor(s). It’s important to understand that an independent audit is not required of every nonprofit organization, so you should decide if you actually need to audit your organization before undertaking this process.

Generally, you need to file these statements when you renew your nonprofit’s registration. If you receive a contract from the state government, your organization may also require an audit. Nonprofits that spend more than $750,000 in federal funds in a year also must undergo an audit. If you are registering a nonprofit charitable organization in one of 26 states, you have to file audited financial statements before your organization will be legally allowed to fundraise. As we mentioned, many foundations and government organizations will want audited financial statements when applying for grants. A nonprofit audit examines financial records, bank accounts, business transactions, accounting principles, and internal controls within a nonprofit organization.

Are you ready to fulfill your nonprofit audit requirements?

That’s why our in-house team of 6 former nonprofit auditors helped put together this guide to nonprofit audit checklist to make sure  your audit goes as smoothly as possible. Compliance audits are conducted by government agencies or third-party organizations to ensure that the nonprofit is complying with all applicable laws and regulations. The cost of a nonprofit audit varies depending on the size and complexity of your organization. Generally, nonprofit financial audits can range from $2,000 to $50,000+ depending on a range of elements. Compliance audits investigate your organization’s obedience to federal, state, and local laws.

A CPA examines your financial records, but much less thoroughly than in a full-blown audit. Unlike an audit, the CPA does not express an opinion as to whether your financial statements are in accordance with GAAP. Instead, the accountant merely states whether audit guide for small nonprofit organizations he or she is aware of any material modifications that should be made to the financial statements for them to be in conformity with GAAP. Many funders will accept a review instead of an audit, but a review is not an audit and it may not be referred to as such.