What Is a Nonprofit Audit? Ultimate Guide + Checklist

This The Key Benefits of Accounting Services for Nonprofit Organizations article is focused on the financial audit, but it is important to understand other types of audits that nonprofits may undergo including internal audits, compliance audits, and program audits. This return, called Form 990, is a public document that is available for anyone to view. The Form 990 provides detailed information about a nonprofit’s finances, including income, expenses, and assets. The audit process for a nonprofit organization is similar to the audit process for a for-profit organization. These steps include information gathering, testing of records and transactions, and then the rendering of an opinion. This means that the auditor will examine the financial statements and check for any errors or omissions.

• Generally, nonprofit financial audits can range from $2,000 to $50,000+ depending on a range of elements.
• Grants often come with stringent conditions dictating how funds must be used and reported.
• Robust accounting systems are essential for tracking and allocating these revenues accurately.
• By implementing these practices, organizations can ensure their financial records are accurate and ready for audit review.
• This blog post delves into the intricacies of audited financial statements, exploring their importance, the challenges involved, and the best practices for preparing them.
• Yearly collections falling beneath $25,000 need not file any audited financial records.

It Figures Podcast: S3:E5 – Heads up, Grant Professionals!

Your board will give the auditing committee authority to oversee all audits, including hiring and evaluating an independent auditor. Nonprofits that do this will hire an auditor for a complete review of their financial records. https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ Finally, nonprofits that understand the benefits of audits will include this requirement in their organization’s bylaws, making this mandatory each year. Some of these reasons come from external sources, but regular audits can also be an excellent long-term practice for your organization. Since 1999, Fohrman & Fohrman has helped hundreds of organizations of every size by providing specialized nonprofit accounting expertise on demand.

What are the different types of nonprofit audits?

• For nonprofits, audited financial statements demonstrate proper management of donor and grantmaker contributions.
• Highlighting a clean audit or explaining the actions you’re taking to address findings can reinforce confidence in your organization’s financial stewardship.
• The Georgia Secretary of State’s office, along with the Georgia Attorney General’s office, oversees charitable organizations, ensuring compliance with state laws.
• For smaller budget-sized nonprofits, it is uncommon for an audit to be required by funders due to the resource cost (typically $500K and under).Alternatives to audited financial statements are reviews and compilations.
• Use them to reaffirm your organization’s commitment to integrity, transparency, and fiscal responsibility.
• If you have qualified staff, an internal audit can be a cost-effective way to ensure your organizational controls are working.

Control activities, including approvals, verifications, and reconciliations, mitigate risks. Effective communication systems ensure timely and accurate information exchange, while ongoing monitoring ensures controls are functioning as intended and adjusted when necessary. Explore essential practices and insights for effectively auditing nonprofit organizations, focusing on unique financial and compliance aspects. The duration of the independent audit can vary according to whom the audit is due, board members, for example. While some expectations can appear generous, the amount of work demanded by the audit may find auditors sweating to make the finish line in time.

Should you try to find a pro bono auditor?

An organization’s revenue and donations are perhaps the most important aspects of running a nonprofit. These audits are often reviewed by federal oversight agencies, making accuracy and experience critical. Nonprofit executives must ensure that finance teams and internal systems are audit-ready well before auditors arrive. Once the auditor completes their work, they’ll compile their findings into a report and present it to your nonprofit. The first thing to know about this report is that if it isn’t clean, that is totally fine! What really matters isn’t how many recommendations the auditor made—it’s how promptly and thoroughly you act on them.

• There are many misconceptions about audits, and the process can be challenging to understand at first.
• The agent may also quiz staff as to the state of internal controls and other procedures that ensure accuracy and integrity.
• In the past, you may have seen the terms “reportable condition” and “material weakness” in your audit reports.
• It is crucial for maintaining financial transparency and accountability within the organization.

Control deficiencies are categorized as deficiencies in design or deficiencies in operation. Nonprofit Organizations may need an audit to fulfill a legal requirement or as part of a contractual agreement. In these cases, the Board should determine which type and frequency of audits to conduct based on the organization’s circumstances.