You want to demonstrate your commitment to financial transparency. By publishing an independent audit report on your nonprofit website and providing the report to anyone who requests it, you’ll be assuring your donors and the public that your financial practices meet accepted standards — for handling contributions, for instance.
Many public and private foundations — and funders — require charitable nonprofits to submit audited financial statements to be eligible for funding. Budgets and cash-flow statements predict your nonprofit organization’s financial future, but you need a review of each year’s annual income and expenses in your financial statement, which tells the story of your organization’s past.

Preparing and interpreting your financial statements is a special area of expertise. An audit involves a formal study of your policies and systems for managing your finances, a review of financial statements and commentary about the accuracy of those statements.
Such charity watchdogs as CharityWatch, Charities Review Council and Charity Navigator take into consideration whether a charitable organization has an annual independent audit when they do their ratings. To exercise their due diligence, your top management committee or board of directors may want the assurance offered by an independent audit that the financial statements are free of material misstatements.
In the audit, the CPA expresses an opinion as to the legitimacy and completeness of financial statements, resulting from test procedures and an evaluation of your internal controls. Analytical procedures coupled with inquiries of management allow the CPA to attest that no material modifications are needed for financial statements to be in accordance with generally accepted accounting procedures (GAAP) — the common set of accounting principles, standards and procedures used to compile financial statements.
Getting Started
A first step, then, is to decide who in the company will oversee the audit process. Whether you form a task force or delegate the task to staff, it should be someone who is familiar with the scope of the audit process. That person, or even an audit committee, can deal with selecting the audit firm.
In selecting the audit firm, it makes sense to choose one that has expertise and knowledge in performing an audit for charitable nonprofits. Before meeting with the candidates, develop goals and objectives to help narrow your search.
In negotiating the agreement with the auditor about the process of reporting the audit to management and evaluating the auditor’s performance after completion, your audit committee should be in charge of reviewing a draft of the audit. You want to be sure that management and staff will correct any weaknesses in your systems of internal control.
Consider whether you want your audit firm to address any auditing concerns. Clarify your expectations for your involvement in the audit and for the auditor’s report. Auditors should provide a deep understanding of your organization, its environment and your internal control systems. Expect time and commitment on the auditor’s part.
To learn more about how our firm can serve your nonprofit organization, don’t hesitate to contact Kathy Corcoran at (302) 254-8240.
©2024