Tuesday, April 3, 2018

Is your nonprofit organization required to have an independent financial audit performed?

Is your nonprofit required to have an independent financial audit performed?


An independent audit is the examination of a nonprofit’s financials by a certified public accountant.
desk with accounting tools
The audit is performed to examine the nonprofits accounting practices, financial records, banking transactions, and donor pledge cards.

Many states require the packaging of an audit with state charitable registrations for fundraising, but the requirement usually involves a certain level of revenue/contributions received.  The amount that requires an audit is different from state to state. A professional fundraiser may be able to offer information on audit requirements.
State government contracts may also stipulate an independent audit.
Many private foundations expect an independent audit included with the request for funding from the charity. This expectation is usually outlined along with the criteria to apply for the grant.
Federal law requires an independent audit if the nonprofit revenue raised is $750,000 or more.
If a nonprofit organization receives funding from the state or federal government, an audit may be required.
If an audit is required, it would most likely be due at the end of the calendar year, your fiscal year, or a date specified by the state or federal government.

A charity independent audit report is issued by the certified public accountant(s) to be reviewed by the nonprofit’s board of directors. An Adverse Opinion from the auditor can have a significant impact on funding efforts including direct mail, digital marketing, annual campaigns, professional fundraising, and telemarketing (telefundraising) to name a few.

The cost of the charity accountability financial can be over $10,000 every year for small nonprofit organizations and much more for larger charities. It can be a severe setback for a new nonprofit organization during its infancy if it cannot afford the audit. As I mentioned earlier, many private foundations require the approval of an independent audit for funding. If the nonprofit organization cannot provide the audit, it very well may affect fundraising efforts overall. The charity is unable to apply for a grant from the grantor.

As the charity grows in size and revenue, the audit will become part of the nonprofit organizations yearly experience.

The material discussed should not be construed as legal advice or a legal opinion on any specific facts or circumstances.  

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