How to Request a Nonprofit Audit
Requesting a nonprofit audit is a critical step in ensuring regulatory compliance and demonstrating trust to current and potential donors. Audits display a leadership’s willingness to run an open and accountable organization.
What Is Nonprofit Auditing?
Nonprofit auditing involves examining an organization’s statements to determine overall financial health and compliance with state and federal laws. An independent third-party auditing firm assesses internal controls, accounts, transactions and accounting practices against the generally accepted accounting principles (GAAP).
The audit requirements for nonprofit organizations include:
- Fulfilling by-law procedures.
- Expensing over $750,000 in federal funding per year.
- Recording a gross annual revenue of more than $500,000 in most states.
- Completing a grant application.
How to Request an Independent Nonprofit Audit
An independent audit establishes credibility, ensures compliance and reveals areas for financial improvement. Use the steps below to request this evaluation.
1. Determine if an Audit Is Necessary
Check the state, federal and organizational requirements to determine if your nonprofit needs an audit.
2. Assign Audit Responsibility
Board members can oversee the auditing duties themselves or give the responsibility to a subcommittee or task force. Also, they must determine which roles to delegate to employees and identify a liaison between the audit overseer and the auditing firm.
3. Establish Goals and Reporting Procedures
Identify the goal and expectations for the audit and determine how the auditing firm will present its findings.
4. Address Conflicts of Interest
Determine how to address conflicts of interest arising from allowing those involved in internal controls and financial matters to gather audit documents. This step ensures accurate and objective audit results.
5. Search for an Audit Firm
Search online for reputable and qualified auditing firms with experience evaluating the financial health of nonprofits. You can also ask other organizations for recommendations.
6. Create a List of Your Top Firms
Narrow down your list to the firms that attract your interest.
7. Submit a Request for Proposals (RFP)
Request proposals from your top firms and compare their fees, timelines, case studies and references.
8. Choose an Auditing Firm
After assessing the proposals, pick the most qualified firm.
Pre-Audit Questions to Ask Auditors
To ensure seamless auditing and to understand the process, ask your auditing firm the questions below:
- What is your transition process? Determine how the new auditing firm will work with your previous auditor to ensure a smooth transition.
- What major accounting changes could affect the audit this year? Ask your auditor to explain recent regulatory updates and how they’ll affect the nonprofit audit.
- What is the scope of the audit? Determine all the documents the auditors intend to examine and how they’ll impact the audit’s goal.
- How can our team help to make the process smooth? Ask how your employees can help the auditor streamline and accelerate the entire process.
- What does your control assessment involve? Because the auditing firm will examine multiple transactions, ask them to describe their control assessment and its effects on their process.
- How do you determine materiality? An omission or misstatement is material if it impacts the decision of financial statement users. Find out how the auditing firm determines what is material or immaterial and its effect on the results.
- Do you anticipate independence issues? Ask if the auditing firm has any circumstances that could affect the independence of the audit. For instance, an independence issue can arise if the child of an auditor attends a nonprofit school.
- How do you define independence? Find out what methods the auditing company uses to define its independence.
What to Expect During a Nonprofit Audit
After receiving satisfactory answers to your questions, here’s what you can expect to happen:
Document Requests
The auditor will ask for various financial records, such as:
- Bank statements.
- Unpaid invoices.
- Investment statements.
- Recent form 990s, 1099s, W-2s and other tax documents.
- Handbook of fiscal procedures and policies.
- Board meeting minutes.
- Records of grants received.
- Payroll information.
- Gift details.
To simplify audit preparation, you must organize several financial matters, such as:
- Reconciling bank accounts.
- Reviewing your vendors.
- Sending undeposited funds.
- Assessing accounts payable and receivable.
- Addressing uncleared transactions.
- Identifying coding errors.
The auditing firm may also require access to the organization’s accounting system to audit your financial records. Ensure to set up the right permissions when providing this access.
Data Tests
After gathering the necessary information, the auditor will proceed to test:
- Internal controls: They’ll review your organization’s policies and processes to ensure accurate and compliant financial reporting.
- Transactions: The firm will compare sample transactions from bank statements and supplier invoices to your financial records to confirm the data matches.
Inquiries
The auditor may have questions for your team during auditing to better test and analyze the data. So, ensure open communication with your employees to streamline the process.
Audit Reports
The auditor will document their objective view of the nonprofit’s financial health and compliance with financial reporting laws. They’ll also present their findings to the board, subcommittee or task force.
Here are some questions to ask the auditing company during this meeting.
- Did you encounter any hindrances that made you change the auditing approach?
- Were there any significant material deficiencies in the control system?
- Were there any disagreements between our teams during auditing?
- Did our team fail to make any proposed adjustments?
- What is your perception of our leadership’s attitude toward financial controls?
- What can we do to streamline the auditing process for you and us next year?
- Do you have any other matters you’d like to address?
Why Nonprofits Should Consider Conducting an Audit
Regardless of whether the law requires an audit, evaluating your financial and compliance status is significant because it:
- Demonstrates your commitment to financial transparency and accountability.
- Builds trust with donors and other stakeholders.
- Enhances the nonprofit’s eligibility for grants.
- Identifies areas to improve financial strategies, management and internal processes.
Request a Nonprofit Audit From Marshall Jones
Leveraging over 30 years of experience, Marshall Jones offers expert nonprofit audits to help you understand your compliance and financial status. Our team is ready to answer all your questions and customize an auditing strategy that fits your specific goals.
When auditing a nonprofit organization, we observe accounting best practices to deliver accurate and objective results. Contact us online today to request an independent audit. We’ll help you save time, re-focus your resources and improve your operations.
