If your nonprofit organization needs additional funding and you choose to apply for a loan, more often than not, a bank will require an audit of your loan application, and throughout the life of the loan. An audit helps your loan officer understand your financial situation and your reasoning for funding. Certain state laws might also require your organization to undergo an independent audit. The audit will help support how your organization receives and spends funds from grantors, contributors, and contracts. Dedicated audit preparation comes with our standard bookkeeping and accounting services for mid-sized to large nonprofits and is available as an add-on for small organizations. Plus, we can suggest potential auditors and work with you to develop and implement your post-audit action plan, customizing our approach based on your unique needs and goals.

Examining Internal Controls

Even if you’re not required to conduct an independent audit, you can still benefit from voluntary audits, since you’ll demonstrate to stakeholders that you take financial management seriously. An audit will also flag areas for improvement within your operations or fundraising plan, such as inefficient processes or unnecessary spending. For many organizations, the idea of an audit conjures images of endless paperwork, tough questions and stress. In fact, they’re one of the best ways to ensure your nonprofit’s financial practices are strong, donors continue confidently supporting your work and your mission stays on track. Effective financial management is the backbone of a thriving nonprofit, ensuring stability, transparency, and informed decision-making.

• There is no set timeframe for how often a nonprofit should have an audit if not required by law or contract.
• These changes may impact the level of assurance service required for your organization.
• For example, if the audit highlights gaps in financial reporting, update the financial policy to include more rigorous documentation and review procedures.
• Through detailed review, audits help identify discrepancies and errors in financial records.
• They’ll also provide recommendations for improving financial practices and addressing any issues they identify.
• Here are a few questions you can consider when you assess which service (if any!) is best for your nonprofit.

Audit Requirements for Not-For-Profit Organizations

• It assesses your tax-exempt status, unrelated business income, and proper handling of donations and expenses.
• Our approach prioritizes both compliance and empowerment, ensuring businesses are informed and well-prepared for the tax season and beyond.
• Their only role is to oversee the independent audit process, allowing for faster decision-making and more focused attention.
• Lastly, an often overlooked benefit of the nonprofit audit is that it can provide constructive recommendations for improving the organization’s operations.
• These interviews help gauge understanding of processes, controls, and significant financially relevant activities.

This document formalizes the agreement between the nonprofit and https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ the auditor. NFF regularly produces tools and resources like this to help nonprofits navigate big questions, challenges, and opportunities. Find guides to budgeting, cash flow, financial storytelling, and much more on our Fundamentals for Nonprofits page. A compilation is the cheapest option and can help highlight issues with how financial data is currently organized.

Financial Review vs Audit

See the Audit Services & Consulting section of our website for more information about audits, reviews, and other services we provide. Audit requirements that apply to federal awards are set forth in the OMB Uniform Guidance. The Uniform Guidance does not apply to contracts as defined by the federal government. The federal government uses the terminology “contract” to refer to agreements between the federal government and nonprofits that address funds used by the nonprofit to purchase goods or services for the purchaser’s own use.

Independent audit

Financial institutions, especially traditional banks, often require audited financial statements before extending credit. Understanding the scope of a nonprofit audit is an important part of the process to ensure accuracy and compliance with reporting standards. The scope refers to the extent and type of review that will be conducted by the auditor. This can vary greatly depending on the size and complexity of the organization, as well as its financial activities and strategy. In a review, a CPA will examine your organization’s financial records, but not as thoroughly as a normal audit.

Related Organizational Management Articles

Missy’s commitment to delivering top-notch accounting services and strategic consulting has positioned her as a trusted professional in the nonprofit sector. Some states mandate annual audits for nonprofits, especially those that meet a certain revenue threshold, or solicit donations from the public. It is especially relevant for if your nonprofit receives government grants or public funding as the audit will check if The Key Benefits of Accounting Services for Nonprofit Organizations you’re following the specific spending guidelines set by the grant providers. At James Moore, our nonprofit assurance professionals provide both reviews and audits of various types of nonprofit entities. Here’s a rundown of what each entails and what might be best for your organization.

• However, nonprofit leaders are often uncertain about whether they need a full audit or if a review would suffice.
• These articles and related content is not a substitute for the guidance of a lawyer (and especially for questions related to GDPR), tax, or compliance professional.
• If you circulate a request for proposal (RFP), most auditing firms will keep their quotes competitive.
• And when you need an independent audit, consider partnering with Assurance Dimensions.
• This means your initial registration period may be less than 12 months, but it may also be more than 12 months.

A review is also done by a CPA, but only examines an organization’s financial statements, accounting practices, and accounts. It does not cover records, individual transactions, or internal financial controls, and therefore provides less assurance on the accuracy and presentation of the financials than an audit does. In some organizations, the audit committee is also the body that is designated as the “ombudsperson” for the receipt of complaints about financial management. Whether or not the audit committee plays this role is usually addressed by the nonprofit’s whistleblower policy, which may identify the audit committee or its chair as the person to whom complaints should be directed. If the audit committee is assigned this role, if a staff member raises a concern about the nonprofit’s financial practices, the employee reports their concerns to the chair of the audit committee.