Not-for-profits face unique challenges when it comes to accounting. These organizations often experience scrutiny regarding their finances. Hiring an accountant helps not-for-profits stay compliant with laws and regulations, while allowing them to focus on what really matters: advancing their mission.
Independent Financial Audits
Not-for-profits may be required to complete an independent financial audit. This should not be confused with an IRS audit. Instead, an independent audit is an examination of financial records and statements by an outside public accounting firm or certified public accountant.
During an independent audit, records are examined to ensure that they are correct and compliant with generally accepted accounting principles (GAAP). An independent audit helps ensure that books are properly kept. It also helps prove sound financial management.
A not-for-profit might be required to undergo an independent audit if:
- The nonprofit receives over $750,000 a year in federal funding (this would require a Single Audit)
- The nonprofit’s bylaws require an audit
- The nonprofit is located in a state that requires audits if funds are solicited from state residents
Different states have varying requirements regarding independent audits. It’s crucial that not-for-profits learn all they can about state requirements.
Although independent audits might be required under certain conditions, there are numerous benefits to their voluntary completion. Independent audits help nonprofits obtain loans and manage costs. They can also be used to prove transparency to stakeholders and provide useful information to potential donors.
Independent audits take a lot of time and effort to complete. Large nonprofits can expect to pay more than $20,000. Smaller nonprofits typically pay around between $15,000 and $20,000 to complete an independent audit. Involvement of board members and management is required throughout the process and an integral part of a successful audit.
Smaller nonprofits may elect to have a review or compilation in place of an audit. These options are not as thorough and do not provide the same level of assurance to stakeholders as an audit would. Although a review or compilation performed by an experienced accountant can help nonprofits manage costs and identify some accounting issues, they are not a reliable substitute for a full independent audit.
Not-For-Profit Accounting Services
Burdette Smith & Bish provides independent audits for not-for-profits providing support to charities, trade associations, fine arts, youth associations, special interest lobbying groups, humanitarian endeavors, and community services. Our firm employs over forty professional accountants. We provide a variety of services to not-for-profits around the United States.
Have questions? Please contact us for a consultation.