You manage a nonprofit or serve on its board, and you’ve heard that nonprofits need to have an independent audit. You wonder whether your organization needs one and want to better understand what it actually entails.
State and federal laws vary in their regulation of nonprofits. Some states require an independent audit, whereas others do not. In either case, you should have a grasp of the requirements.
An independent audit is an examination of the organization’s financial records, accounts, business transactions, accounting practices and internal controls. It is considered independent because the auditor is not an employee of the nonprofit but rather is contracted from a separate company.
A nonprofit might not be required to undergo an independent audit, but it might not be a bad idea. In an age when financial transparency equates to trust, a nonprofit could benefit from such an examination. Potential donors might want to be assured that the nonprofit meets all accepted standards and follows all appropriate procedures to handle their contributions.
Whether or not you’re required to go through an audit, you’ve decided to proceed. Here is what you should expect.
Select an audit firm.
Your board of directors should form a search committee to find an appropriate CPA firm. Once formed, the committee needs to find a firm that has nonprofit experience, can provide references, and is willing to discuss how it will educate your staff on how to prepare for this time-consuming process
Before the audit.
Hiring an auditor is not the end of your involvement. You need to prepare for the process. Have your documentation ready so that the firm can draft a “letter of engagement” that will outline the following:
- A description of services to be performed.
- What the nonprofit’s staff is responsible for.
- The fees that will be charged.
- The start and completion dates.
After the audit
Your organization will receive a “letter to management” from the auditor. This letter outlines areas where improvement or redesign might be necessary. For example, it should explain any internal control issues or operating inefficiencies.
It may take an outsider to identify inefficiencies and recommend improvements. Given that you already have a full-time job, you likely need and want help throughout the audit process. That includes help with preparing for the audit as well as with the audit itself. Many nonprofits have relied on us for their independent audits because of our extensive experience in the world of charitable pursuits. Give us a call and we’ll make the process an easy one for you and your organization.
To learn more about how our firm can serve your nonprofit organization, don’t hesitate to contact Kathy Corcoran at (302) 254-8240.
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