Thirty-nine states (plus the District of Columbia) require charitable nonprofits to register with the state in order to fundraise in that state. Consequently, the laws that require a charitable nonprofit to submit audited financial statements also vary state-by-state. The AICPA and the individual state governments require auditors to be independent. The Sarbanes-Oxley Act requires publicly traded companies to rotate lead auditors — not necessarily audit firms — every five years. While this provision of the Sarbanes-Oxley Act of does not apply directly to nonprofits, it is still a wise practice for a nonprofit to consider how to rotate its lead auditor. Auditor independence may also be compromised if the audit firm provides consulting services to a client nonprofit.

Best Practices for Long-Term Audit Success

The additional cost to perform these audits may even feel improbable, but there are several benefits for nonprofits that perform regular internal audits. In this meeting, you’ll discuss how the auditor will conduct the audit, the timeline of the entire audit process, and any concerns you may have. That way, you ensure everyone is on the same page and communicate everything proactively. Our Nonprofit Service Group is committed to serving over 300 Minnesota nonprofits. We strive to provide high-quality services in a timely, cost-effective manner.

• Picture the IRS checking if you correctly report income from a major fundraising event, like an annual gala or charity auction.
• The problem with joint cost allocation is that you can’t arbitrarily pick a spending ratio out of the air – even if you’re making an educated guess.
• The play opens with a sad merchant, worried by the faith of his big bet investments.
• Start by convening an audit committee or relevant board committee to select the auditor you’ll work with.
• It looks at your control procedures, risk management, and adherence to policies.

Control Overhead Expenditures and Audit Costs by Staying Audit-Ready With Smarter Nonprofit Accounting

The best way to determine this for each The Key Benefits of Accounting Services for Nonprofit Organizations option is by asking for a request for proposal (RFP). The primary purpose of the auditing committee is to find an independent auditor. You must start working with an auditor early enough to meet external and internal deadlines. It’s recommended that you find and begin working with the auditor 4 to 12 weeks before the deadline. These improvements may involve fundraising opportunities you weren’t aware of and expenses you no longer need. An independent auditor can give your organization an outside perspective when you feel stuck.

Benefits of Independent Audits for Nonprofit Organizations

Where stewardship is often about cutting cost rather than investing in robust cultures and infrastructure to support stewardship. Often it’s just that missing leadership quality called integrity and we should look for it our leaders and all our staff. External auditors, in contrast, give your organization credibility and are often required for compliance with funders and regulators. For example, some US jurisdictions demand an external audit from nonprofits whose annual revenue exceeds a certain threshold—a threshold that varies between the different jurisdictions. While audits can be onerous, the process presents the ideal opportunity for verifying that everything is in order with your nonprofit’s finances. Not only does a well-organized audit process add weight to your standing with supporters, it’s also excellent practice for good financial management and ensuring regulatory compliance.

• Stay up to date on financial and operational issues that could affect your organization by browsing articles, newsletters, and other relevant content written by our Not-for-Profit Practice professionals.
• Here’s a breakdown of the key phases and typical timelines involved in working with an independent auditor.
• Nonprofit audited financial statements offer much more than financial validation; they help you detect internal inefficiencies, which means your financial affairs stay on track, enhancing overall accountability.
• So, while IRS audits are not frequent occurrences due to federal tax law requirements for a nonprofit organization, the modest possibility remains.
• Our simple-to-use and powerful features range from Donation Forms and Fundraising Pages to Recurring Donations, Crowdfunding, Peer-to-Peer, Events, Memberships, and more.
• Before your audit, it’s a good idea to analyze your internal controls and procedures.

Our robust donation management software protects donor data and streamlines donation reporting and analytics to ensure accuracy and time-savings https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ for everyone involved. Nonprofit Collaborative of Southern CaliforniaJanet Fohrman is the founder of the Nonprofit Collaborative of Southern California (NPCSC). It’s members consist of CPA, Marketing, Attorney, Insurance and other industry professionals that service nonprofit organizations. Fund accounting allows nonprofits to segregate financial resources based on their intended purpose, ensuring accountability and transparency.

This committee will prepare requests for proposals (RFPs) that outline what you’re looking for the auditor to accomplish and interview potential auditing firms. At the end of this step, you’ll decide on which auditor to move forward with. This National Council of Nonprofits map is helpful for evaluating state requirements, though funders may also impose audit requirements, even for organizations in states that don’t require them. Always, but particularly in the current environment, the ability for a nonprofit to show that it takes fiscal compliance and oversight seriously, is as important as ever. Despite the importance of the annual audit, too many nonprofits treat audit prep as a once-a-year scramble—digging through files, chasing missing records, and hoping things line up. This reactive approach often results in extended timelines, avoidable corrections, and a more stressful experience for everyone involved.

• While it’s very likely your organization will fall into at least one of these categories, conducting an audit is beneficial regardless of whether you’re required to.
• Unlike standard audits, nonprofit audits must check for compliance with specific regulations and requirements, including restrictions imposed by donors.
• Another trigger could be notification by any number of other government agencies that the nonprofit organization has failed to operate in accordance with their rules for grant recipients.
• Effective audit preparation requires systematic organization of financial records and supporting documentation well before auditors arrive.
• Common challenges include limited staff capacity, missing or incomplete documentation, inadequate internal controls, and the need for enhanced financial reporting processes.