Many nonprofits contact our firm believing an audit is their only option, but after discussing their specific circumstances, we often find that a different service is better aligned with their needs. While audits are required in certain situations, organizations outside those requirements can still achieve peace of mind, transparency, and stakeholder confidence through alternative assurance services. Continue reading to learn when an audit is required – and then explore other assurance services that may be the right fit for your organization.
Reasons a Nonprofit Audit is Needed
There are a few reasons why a nonprofit would need an audit:
- Federal Legal Requirements: The IRS does not require nonprofits to obtain audits, but other government agencies do. For example, the federal Office of Management and Budget (OMB) requires any nonprofit that spends $1,000,000 or more in federal funds in a year (whether directly or by passing the money on to other nonprofits) to obtain what is termed a “single audit” to test for compliance with federal grants management standards.
- State Legal Requirement: some states require nonprofits at certain levels of funding to submit audits to state agencies, but at this time, Alabama does not have a state requirement.
- Lender/Donor Requirements: some funders, such as foundations, will not provide funding to a nonprofit unless they receive audited financial statements. The same holds true for many banks and other potential lenders.
Outside of legal or mandated requirements, there are a few other reasons why a nonprofit may want to get an audit.
- Public Accountability: Independent audits are important for maintaining donor trust because it demonstrates that the nonprofit is committed to financial transparency and accountability.
- Tax-Exempt Status Compliance: Audits help nonprofits ensure they are in compliance with the tax laws that govern 501(c)(3) organizations.
Nonprofit Assurance Services
For a base level of understanding, it’s important to know what an audit actually does. An independent audit is performed by a Certified Public Accountant (CPA) to provide an objective examination of financial records, accounts, business transactions, accounting practices, and internal controls. The auditor reviews these items to determine if they follow “generally accepted accounting principles” (referred to as GAAP). The GAAP rules are created by the Financial Accounting Standards Board (FASB) – and any practices out of line have to be reported during the audit.
However, a full financial statement audit may not be what your organization needs. Audits are demanding, both in cost and time for your team. For instance, at Avizo, our starting prices range from starting at $8,600 for a small organization to starting at $20,000 for a large organization, so if it’s not a necessity, there are several services an auditor can provide that may provide the information your organization needs. Check out our Non-Profit Industry page to get more details on how we can help and review the chart below for more details.
Schedule a Consultation
Assurance services play a crucial role in ensuring transparency, accountability, and compliance with legal and financial regulations. Our team can work with you to determine which level of assurance you need, just schedule a consultation to get started today!
Kirsten Owens, CPA
A Manager on our assurance team, Kirsten maintains expertise to provide auditing services with a specialization in Avizo’s governmental and construction-based niches. She is one of the primary leads on our in-field audits and completes training for all members of the firm before they visit clients offices.
