Nonprofit organizations have a responsibility to be transparent in how they use resources, and independent audits play a major role, providing assurance to funders and public entities. It may be easy to consider an audit as something only the large nonprofit organizations need to worry about, but even the smallest agencies may need to have their financial activity audited due to requirements or a desire to measure their fiscal health. This article will serve as a simple guide for a nonprofit organization that is headed into an audit for the first time.
First, Does Your Organization Need an Audit?
What is the purpose of your audit? Federal, state, and local governments require independent audits of nonprofit organizations that meet certain criteria. Nonprofits that expend $750,000 or more in federal funds, meet certain financial thresholds specific to their state of registration, have contracts with state or local governments, or receive funds from private foundations may also have to submit audited records. But there are other reasons why an organization would benefit from an audit. Perhaps your organization is undergoing a change in leadership, there has been evidence of impropriety, or you have experienced some major turnover in funding. An audit will set a baseline for financial performance and uncover ways to improve financial management and cash flow.
Assemble an Audit Oversight StaffAssemble an Audit Oversight Staff
Your staff plays an important role in an independent audit. As an organization, you should select key individuals who understand the trajectory of the organization to oversee the direction of the audit. Audit committees are formed to oversee audit services, but the representatives of the organization play an important role when working with independent auditors too.
Select an Auditor
Whether a committee is used or not, the audit must be conducted by an independent auditor. The goal of an audit is to assure financial integrity. Auditor independence and zero conflicts of interest are critical to establishing a credible audit.
Prepare for the Audit
Once you select an auditor, the audit firm will usually provide an audit prep packet that describes what they want to review and establishes a timeline for the audit. This is followed by a pre-audit meeting where your audit oversight staff meets with the auditors to solidify the scope and objectives of the audit. The National Council of Nonprofits provides a helpful pre-audit checklist to help you gather everything you need: https://www.councilofnonprofits.org/sites/default/files/documents/Getting%20Ready%20for%20the%20Audit%20Checklist_0.pdf
From here, the auditor will manage the timeline for fieldwork and reporting. It’s a busy time, and auditors may need to interview staff and staff will have to provide any documentation that was missed during the pre-audit phase.
The Right Auditor Means an Easy Audit Process
At Rubino, we specialize in helping nonprofit organizations manage their financial responsibilities with our audit and assurance services.
If your organization is faced with an audit and you are unsure what to do, reach out to the nonprofit experts at Rubino. We help you prepare to take the next steps.