The SAS clarifies that the significance of a control deficiency is dependent on the potential for a misstatement, not whether a misstatement actually occurred. All of this translates into increased audit fees, the potential for negative reports in your audit and the risk of losing funding from your funding sources. We also have 6 former nonprofit auditors on staff, so our team is trained to prepare your financial reports precisely how an auditor wants to see them. That helps you save back-and-forth during the process and helps avoid incurring additional expenses during the audit. Before issuing the final audit report, the auditors will issue a draft of the audited financial statements and any necessary audit adjustments. You should meticulously review each proposed reclassification or adjustment to ensure they are reasonable and accurate.

Ultimately, an audit allows the nonprofit to provide financial overviews that are clear, concise and meaningful. This process will help strengthen public confidence in the organization’s financial transparency as well as give members an opportunity to share their feedback. By understanding the goals behind an audit, nonprofits can strive for greater accountability and improved long-term success. The primary goals of a nonprofit audit are to provide transparency into the operations and financial health of the organization. Additionally, this allows organizations to make informed decisions about how they manage their funds, endeavor to be compliant in their operations, and demonstrate good stewardship of donor funds. This page explains the IRS audit process for charities and other nonprofit organizations.

Step 2: The nonprofit audit checklist

Classy’s comprehensive fundraising platform offers unified giving tools that help optimize the donation process. In fact, 95% of Classy’s customers choose our platform year after year for the highest-quality how to audit a non profit organization solutions. The auditor you choose will have a big impact on the quality and actionability of your audit. So do your due diligence when choosing one—focus on finding the right firm to suit your use case.

Nonprofits must provide a minimum of five years’ worth of documentation for the auditor to review. The audit will examine the organization’s financial statements, including income and expenses (including salaries), as well as any other relevant information that may be requested by the auditor. A nonprofit audit is an independent examination of a nonprofit organization’s financial statements and records to ensure compliance. An audit can also provide insight into the organization’s financial health and help identify areas of improvement.

How to Choose the Right Auditor for Your Nonprofit

Globe is trying to bring in more federal and state funding to improve its aging infrastructure in the hopes that people will want to build in the small city 85 miles east of Phoenix. Just over 14% of Winslow’s housing units are vacant, but only about 4.5% of the vacant housing units are available for sale or rent, according to Census data. Instead, most vacant units in the city are used seasonally or are otherwise not on the market. Bisbee, a former mining community of nearly 5,000 tucked into southeaster Arizona’s Mule Mountains, depends on tourism as its main economic driver. While the city was impacted by the pandemic, its economy fared better than expected as officials saw an increase in sales tax collections.

• Auditing a small nonprofit organization requires planning and preparation.
• With a large pool of candidates in hand, the next task is to take one step closer to the best nonprofit auditing firm available.
• Under these new audit guidelines, if your auditor has to create the financial statements for your audit, then it will be reported as a deficiency in operation on your audit report.
• 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.
• Immediately after you receive the final auditor report, your nonprofit must begin making all suggested changes.
• “It’s unclear exactly how much of the $240 million grants, loans, and subsidies was misused, but what is clear is that this company should never have been trusted with public funds,” OpenTheBooks CEO Adam Andrzejewski said.

Let’s get started by making sure we’re all on the same page about what exactly a nonprofit audit entails. For example, users on your accounting software might not follow password best practices, or there may be too loose of access privileges across your organization. Internal audits are better than nothing but don’t necessarily increase public transparency and accountability—since an internal team could be the root of the problem.

What Are the Steps in Auditing a Small Nonprofit Organization

An auditor can examine profit/loss segments so they can easily track expenses back to each donation or grant. In the past, you may have seen the terms “reportable condition” and “material weakness” in your audit reports. The term “material weakness” will still be used, but its definition has changed. Understanding the scope of a nonprofit audit is an important part of the process to ensure accuracy and compliance with reporting standards.

• The IRS will occasionally audit exempt organizations, but these make up a small percentage of the total.
• Rural city and town officials also stressed the lack of affordable housing, which they see as the primary obstacle forcing young people to leave.
• While smaller nonprofits can certainly get by with standard accounting software, in order to properly track multiple programs, funds, and grants, you’ll be best served if you use nonprofit or fund accounting software.
• With FastFund Accounting, you can generate all the required financial statements.
• The Mayor’s Office of Housing and Community Development and the Department of Homelessness and Supportive Housing hired Sjoberg Evashenk Consulting to conduct an audit into HomeRise after discovering discrepancies in their books.
• This involves an on-site visit by an IRS agent to discover where and how financial information is maintained.
• While accounting itself can present numerous challenges to the non-accountant business owner, nonprofit accounting can pose an even greater level of confusion.