Non Profit Audit Disclosure Checklist

An audit may send shudders down your spine, but they’re an essential component of running a nonprofit. Whether independent or IRS audit, our nonprofit audit disclosure checklist will help prepare for both types of audits.

Auditors provide invaluable insight into your financial practices, pinpointing weaknesses and suggesting areas for improvement. Their services can help your nonprofit strengthen internal systems while increasing transparency for donors and regulatory bodies.

1. Financial Statements
Nonprofits must submit regular audits in order to demonstrate transparency and demonstrate to authorities and stakeholders that their operations adhere to all applicable rules and regulations. Before the auditors arrive, gather your documentation into an easily retrievable binder which you can easily pull out during an audit.

Financial statements are reports that detail the financial and accounting information about a company over an established timeframe (usually one year). They comprise three main reports: balance sheet, income statement and cash flow statement – as well as any supporting notes.

These documents offer a thorough assessment of all assets and liabilities your nonprofit holds, including restricted funds set aside by donors who have placed restrictions. Furthermore, it shows any changes in net assets over the year.

2. Programs
Hearing the word audit may strike fear in you, but it’s essential for any nonprofit. Audits establish trust with supporters by showing they that your finances are transparent and fair – plus some granting institutions require audits before awarding funding!

An audit can also help your nonprofit identify areas for improvement that you might have overlooked on its own, such as new fundraising opportunities or expenses which can be reduced. Furthermore, audits provide accountability by assuring compliance with regulations set by governing bodies or bylaws.

3. Budgets
An essential component of nonprofit operations is having a comprehensive budget that details future savings and expenses. A budget helps your nonprofit accurately forecast its financial status so you can make necessary adjustments if overspending occurs or goals aren’t being achieved.

Many states mandate nonprofits conduct an audit based on the amount they bring in or spend. Foundations and donors may require nonprofits to present an audit report before providing funding.

Once an auditor has finished their work, they will present you with a management letter with suggestions. These suggestions could range from procedural changes to major overhauls of systems and processes. Be sure to read this document thoroughly, taking note of any items which pose concerns for your organization – being cooperative will expedite and streamline the audit process for all.

4. Fundraising
Audits are an integral component of nonprofit financial transparency. An independent examination of accounting practices conducted by third-party auditing firms ensures accuracy and compliance with regulations and reporting standards. Although IRS audits are rare for nonprofits, many donors and foundations may require them before awarding significant funding.

At first, adding audit requirements to your nonprofit bylaws might seem intimidating; but the advantages are immense. An audit shows donors that your organization is accountable and transparent – providing confidence for one-off or recurring donations from potential donors. An independent audit can also identify areas for improvement. To find the ideal auditor for your nonprofit, conduct research into local CPA firms with experience working with nonprofits; select three or four options and present them to your audit committee for consideration.

5. Internal Controls
Nonprofit organizations must implement internal controls to ensure financial statements are reliable and assets are safe, and to safeguard assets. Such policies and procedures can deter fraud, safeguard information, monitor performance, and provide timely feedback on achievement of operational and strategic goals.

Internal control activities can take the form of preventive, detective, and monitoring controls. Preventive controls aim to lower the likelihood of undesirable outcomes through inventory observations, password control systems and approval processes; while detective controls are designed to detect an undesirable event such as fraud or improper use of funds which has already taken place.

Auditing standards define material weaknesses as control deficiencies that increase the probability of misstatements or inaccurate financial reporting, creating significant risks to accurate financial reporting. An auditor must identify this deficiency, its effect on presentation of financial statements and any exposure risks it presents for their client company.