Nonprofit Audits: State & Federal Compliance

Ultimately, the necessity of an audit varies based on size, revenue, and regulatory obligations. Timely completion is essential for ensuring transparency into the finances of a nonprofit organization while also providing assurance that donors’ funds are being used in accordance with their stated goals and objectives. An independent nonprofit audit is a thorough examination of a nonprofit organization’s financial records, transactions, and compliance with relevant laws and regulations. “Independent” is key here, as it signifies that the audit is conducted by an external party, typically a CPA with no vested interest in the organization’s finances. A key component of nonprofit reporting is the Form 990, required annually by the IRS for tax-exempt organizations in the United States.

• She soon found that her passion was actually doing tax and advisory work, especially when she saw how her husband’s business could be positively impacted by this.
• Please do not copy, reproduce, modify, distribute or disburse without express consent from Sage.These articles and related content is provided as a general guidance for informational purposes only.
• We will also review suggested strategies and answer any questions you may have.
• By embracing these benefits, nonprofit organizations not only comply with regulatory requirements but also position themselves for sustained growth and impact.
• Nonprofit audits typically include evaluating internal controls, analyzing financial data, and assessing risks.

OUR FIRM

As an auditor, I look for integrity in the budget figures and other similar governance documents. One story I often invoke, in part to spice the conversation but equally to remind people of the organic basis for auditing is Shakespeare’s the Merchant of Venice. The people signed up for an internal audit introduction and then get to hear about Shakespeare’s work. The play opens with a sad merchant, worried by the faith of his big bet investments.

• However, the other types are also useful tools for maintaining transparency and accountability.
• It helps me dispel the fallacy that we auditors are some sadist evaluators looking to fail people, on job exams of sorts.
• This statement helps stakeholders assess the organization’s ability to sustain operations and fund initiatives.
• Jacobson Jarvis has been a long-standing partner leading financial workshops to empower and educate future leaders of color.
• The audit process typically includes planning, fieldwork, and reporting phases.
• 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.

Georgia’s Distinct Audit Requirements

Thirdly, making a habit of an annual audit creates a discipline of adhering to generally accepted accounting principles. The one condition is https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ that annual contributions must exceed $300,000 for the group to use an independent CPA to submit audited financial statements. If donations fall below this threshold, the nonprofit audit is only necessary if the charity employs a fundraising professional for solicitation. Yearly collections falling beneath $25,000 need not file any audited financial records. These provisions fall under the Solicitations for Charity Act passed by the Illinois state legislature.

Changes Reporting Gifts-in-Kind

Her main focus was increasing her technical skills and knowledge, and Jones & Roth allowed her to do just that, while she worked part-time. Michael is a ‘Career Changer.’ In college he earned a degree in Journalism, and then worked as a federal background investigator for 12 years, which required a whole lot of travel. When he and his wife were beginning to plan their family, he decided to change careers and landed on Accounting because he saw great opportunity in this field. Kim is a member of the Employee Benefit Audit and Private Company Service teams and focuses on providing assurance and advisory services to these client groups.

Revenue from membership dues and program service fees often involves delivering specific benefits or services. This revenue must be recognized over the period in which these services are provided, aligning with the accrual accounting principle. Robust accounting systems are essential for tracking and allocating these revenues accurately. These articles and related content is the property of The Sage Group plc or its contractors or its licensors (“Sage”).

• Rather, it is an opportunity to provide insight and guidance that may help an organization thrive long after the audit is complete.
• Through careful planning and effective risk assessment strategies, organizations are better equipped to deliver accurate financial reports while remaining compliant with all reporting standards.
• This review allows management to provide feedback, address any factual inaccuracies, and discuss preliminary findings with the auditors.
• The first thing to know about this report is that if it isn’t clean, that is totally fine!
• Nonprofits are federally-recognized, tax-exempt organizations committed to mission-driven work that serves the community.

Do all nonprofits need to have an audit?

It is important to stay aware of the Georgia Center for Nonprofits for up to date information regarding Georgia state requirements. Beyond the “Single Audit,” all U.S. nonprofits are expected to adhere to Generally Accepted Accounting Principles (GAAP). While not a direct audit requirement, GAAP provides the foundational accounting standards that auditors use to evaluate financial statements.

The data nonprofits handle includes that of vulnerable and insecure populations. To operate effectively with such populations, nonprofits must maintain relationships of trust with these clients. The trust must in turn be supported by robust data stewardship and security practices, including regulatory compliance regimes. This is because for nonprofit enterprises to be effective today and looking ahead into the future, their sensitive data will need to be shared more often. They will be more exposed to partners having different IT capabilities and a amyriad IT security postures, including no security capacity. If any of these requirements apply to your nonprofit, that doesn’t necessarily mean you’ll need to conduct an independent audit every year going forward.

• This will involve creating controls or procedures to ensure that corrective action is taken should any issues arise during future audits.
• For nonprofits, these controls not only prevent fraud or errors but also ensure resources are used in alignment with their mission.
• A key component of nonprofit reporting is the Form 990, required annually by the IRS for tax-exempt organizations in the United States.
• The goal is for auditors to gain a comprehensive understanding of how funds are being used and managed across various departments within the nonprofit organization.
• Regular audits enhance financial transparency, fostering trust among donors and beneficiaries.
• Here’s how this nonprofit audit guide will help you prepare, understand what to expect, and ensure transparency throughout the process.

This mostly out of habit and such audits tend to miss important entity level risks. However, even if your nonprofit isn’t required to undergo an audit, it can still be worthwhile to conduct one to get a better understanding of your organization’s financial situation. Based on Form 990 data, of the 135,000 nonprofits with revenues over $1 million in the most recently filed tax year, nearly 88,000 (65%) indicated on the Form 990 that they had an audit. Under generally accepted accounting principles, a financial statement audit must be performed by a qualified CPA.