Our team is regularly approached by not-for-profit organization leaders who tell us they need an audit. Oftentimes, after having a conversation, we uncover the organization needs an assurance service, but not necessarily an audit. An external financial audit completed by an accounting firm is the highest level of assurance you can get. It is “the process of performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements in order to provide an opinion on the financial statements.”
In simpler terms, when completing an audit, our team’s job is to examine an organization’s financial statements and then provide an unbiased opinion on whether what is stated in those financial statements matches the reality of bank statements and accounts.
The 4 Situations when a Not-For-Profit NEEDS an Audit
Because a not-for-profit organization typically gets funding from donors and grants, it would seem like the best solution to prove funds are being collected, saved, and spent correctly is to get the highest level of assurance possible. However, due to the cost and time it takes to complete an audit, it’s best to talk to an assurance expert to determine what service you really need. Unless your organization is required to get an audit, you might be surprised to learn there are better options to get the confirmation you need. Scroll over the icons below to learn the four situations that require a not-for-profit to complete an external financial audit.
Outside Party Requirement
Internal Requirement
Capital Campaign
Single Audit
Other Not-For-Profit Assurance Service Options
People often associate the word audit with the IRS process of “auditing” of someone’s tax return, which creates confusion about what an external organizational audit actually does. What you might have noticed in the sections above is that an audit is designed to examine financial statements – it is NOT designed to uncover whether someone is misusing funds or not following the processes you have in place. These issues can surface during an audit, but they are not what an auditor is focused on looking for. If those are your concerns, consider a different assurance service.
Here are a few scenarios that can be uncovered and corrected with different assurance services:
If you suspect there is illegal financial activity, including fraud, you need a unique project called a Forensic Audit which uses different types of investigative techniques designed to find any illegal financial activity and produce evidence to be used in a civil or criminal court of law.
During an audit, we will tell you whether we think fraud is happening, but this is NOT the purpose of an audit and we have special tests we’d need to run if the goal is to determine fraud.
An audit can’t be performed without financial statements (auditors have to be independent with regard to the entity). An audit service can only issue an opinion on what already exists.
A Review is when an accountant examines financial statements and determines whether there are any material modifications that should be made for them to be in accordance with the financial reporting framework. Essentially, we could tell you what needs to be changed.
A Compilation is when an accountant compiles information provided into a format required by accounting standards that it is free from obvious errors. In this instance, we would be helping you assemble the information needed for the financial statement to be prepared.
Our team can help you with Internal Controls if you need assistance with improving and/or developing accounting processes.
Auditors are not part of management and cannot act as management or make management decisions. For generalized requests (such as checking to see if internal controls are being followed) we can prepare an engagement for an Agreed Upon Procedure. With this assurance service, we’ll work with you to identify the specific needs of your organization and the accountant will issue a report of findings based only on the specific procedures performed on pre-identified areas of concern.
Every organization should be using technology for their accounting procedures. If you need help selecting software, training in it, and setting best practices – our team can help.
Our assurance team maintains specialized expertise in Not-For-Profit, Governmental, Employee Benefit Plan, and Utility assurance services. If you have any questions or want to know more about the options listed in this blog, please give us a call at 251-928-2443.
Rachel G. Young, CPA, CGMA
Rachel is a Shareholder & Strategic Consultant who is also the leader of our Assurance Department. She has over 20 years of experience working side-by-side with clients in Avizo’s governmental niche.
