Nonprofit Organization Audit Checklist

Nonprofit audits serve to verify the accuracy of financial statements and strengthen accounting practices, providing donors with assurance that their funds are being spent as intended.

Preparing for a nonprofit auditor review involves asking questions. Doing this will enable the audit committee and organization leaders to gain a clear understanding of what the auditor is searching for.

Internal Controls

Internal controls in nonprofits refer to policies and procedures designed to safeguard them against errors, fraud and theft. They ensure management has reliable, accurate and up-to-date information necessary for effectively planning, monitoring, reporting and overseeing business operations.

An important control is requiring two signatures on all checks issued within an organization, so as to prevent one individual from having sole control of its finances and distribution.

Other more sophisticated controls may include segregating duties and using passwords to gain entry to an accounting system. All of these controls should be documented, monitored, and tested to ensure their effectiveness.

When an internal control fails, it should be identified and addressed immediately. Once identified and corrected, its findings should be reported to management as well as potentially the EthicsPoint confidential hotline if serious enough. Furthermore, an auditing department should review these results and suggest ways to enhance the internal control framework.

Financial Statements

An audit for nonprofits involves conducting an in-depth review of your financial statements to verify they provide information accurately and fairly in line with Generally Accepted Accounting Principles. A nonprofit audit may be required by grants; additionally, it can reassure donors that your charitable organization operates transparent systems with trustworthy management practices.

Auditors begin the audit process by sending you a “Pull by Client” list of documents and information they require from your organization, such as financial statements, bank reconciliations, payroll documents and grant information.

Nonprofits frequently struggle to distinguish earned income from contributed support in their financial records and statements, especially with new accounting pronouncements that alter how expenses are allocated between program services, management & general, fundraising activities and administration and general expenses. Your auditor can assist with these changes to ensure your accounts reflect your organization’s structure going forward.

Audit Reports

Nonprofit audits help organizations maintain transparency and accountability with donors, sponsors, and members. Auditors review financial statements of nonprofits to assess whether or not they present an accurate representation of their finances without inaccuracies or misrepresentations; to do this they must conduct thorough reviews on cash management practices, internal control systems, long-term investments, accounting systems and risk assessment policies and procedures of these nonprofits.

Audit reports provide nonprofits with a powerful way to refine their financial reporting methods and strengthen them over time. To prepare for an audit, a nonprofit should ensure it has all relevant documents and records handy – this may include financial statements, bank reconciliations, payroll documents and information on grants received.

Furthermore, nonprofits should review their vendor list to make sure there are not too many vendors with negative or zero balances – this may indicate that the organization isn’t efficiently using its vendor credits.

Taxes

Although nonprofits are exempt from paying taxes, they still must file some vital forms. One such form is Form 990 which helps maintain your nonprofit’s tax-exempt status by maintaining transparency with donors and stakeholders, as well as provide evidence of ethical financial management practices within your nonprofit.

Your may also need to file Form 1099 for miscellaneous income, such as payments made to contractors or vendors during the year if their payments total $600 or more. This requirement typically falls under federal law.

Nonprofits should be prepared for the auditing process and recognize that finding and hiring an auditor could take some time. Speak to potential auditors about how long their audit will take and their fees structures to help compare options and find one suited for your organization; scope of audit and accounting practices usually have an effect on this figure.