Scope of audits and compliance checks of exempt organizations Internal Revenue Service

Read more detailed information about the staff’s role and preparing for the auditor’s fieldwork. If your organization has been selected for a review based on one of the above scenarios, then you will receive either a letter or phone call from the IRS Exempt Organizations (EO) Examinations. One of our Classy experts will reach out to schedule a hands-on walk-through of the platform and demonstrate how our industry-leading solution can help your nonprofit reach its goals. The auditor you choose will have a big impact on the quality and actionability of your audit. So do your due diligence when choosing one—focus on finding the right firm to suit your use case.

Venmo for Nonprofits: A Complete Set-Up Guide

Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits. As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development. During the research process, your auditing committee must have a clear idea of how long the audit will take and how much working with the auditor will cost. The best way to determine this for each https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ option is by asking for a request for proposal (RFP). When auditing becomes a standard practice within your organization, your board, staff, volunteers, and donors understand their responsibilities and hold themselves and others accountable. Regular audits will keep your Board of Directors and employees accountable for their decisions.

Reports

• Additionally, understanding and implementing the matching principle, where revenue is recognized in alignment with program performance, can lead to more accurate and transparent financial reporting.
• The Ohio State University provides funding as a founding partner of The Conversation US.
• The auditor you hire will conduct an independent investigation that will test the accuracy of your accounting records and internal controls.
• These audits are often reviewed by federal oversight agencies, making accuracy and experience critical.
• Nonprofit executives must ensure that finance teams and internal systems are audit-ready well before auditors arrive.
• The Uniform Guidance does not apply to contracts as defined by the federal government.

It’s getting harder to find CPA firms that conduct nonprofit audits, and their schedules fill up quickly. Ask your network for recommendations if you don’t know a firm and try to get someone lined up at least 6 months in advance. There are many misconceptions about audits, and the process can be challenging to understand at first. To clear up this confusion, let’s begin by answering some common questions about nonprofit audits.

Compliance Audit

Many states also require nonprofits to perform an audit when renewing their nonprofit registration once they reach a specific revenue. After you’ve received the grant, foundations may also ask for financial reports that show how the funds were used. By performing regular audits on your own, you’ll be prepared for these requests. Finally, nonprofits that understand the benefits of audits will include this requirement in their organization’s bylaws, making this mandatory each year.

These examples underscore the breadth of issues nonprofits address and the critical need for transparent financial practices verified through audits. Their oversight helps confirm that nonprofits are true to their missions and effective in their pursuits, thereby supporting the credibility of the sector. By clearly articulating the findings of an audit along with recommended corrective action, nonprofits can help ensure transparency into their financials while maintaining their reputation with those who trust them with their donations.

This article provides practical tips for updating your mission, including reasons for change, a step-by-step guide, and how to stay focused throughout the process. The type of audit your organization conducts will depend on the size and complexity of your nonprofit and its specific needs. ‍The first step to auditing a small nonprofit is to select the auditor that is right for your organization.

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Use them to reaffirm your organization’s commitment to integrity, transparency, and fiscal responsibility. In many cases, the most time-consuming part of the audit process is choosing an auditor. Your audit report will be most helpful to your nonprofit if you select an auditing firm with a strong track record that aligns with your needs and budget. Regardless of your nonprofit’s reporting deadline (or lack thereof), we recommend completing your financial audit before completing your annual tax return so you can include the changes you’ve made as a result of the audit in it. The federal government is not the only one that requires regular audits by nonprofits. One-third of all states in the US need nonprofits to perform regular audits if they solicit state residents.

• This highlights the importance of efficient and strategic planning during the audit process to ensure sustainability and growth.
• Not conducting an audit can be detrimental for a nonprofit organization, as they risk not meeting important regulations or requirements which can lead to fines, penalties, and other sanctions.
• Some of these actions may be simple improvements that add up to make a significant difference in your operations, while others may be more complex changes that will take time and effort to implement.
• This isn’t a complete glossary of auditing and accounting terms, but it’s a good place to start.

Your organization’s development team assigns an audit committee to perform internal audits. Internal audits are better than nothing but don’t necessarily increase public transparency and accountability—since an internal team could be the root of the problem. Donors need to trust an organization before they contribute a one-off gift or recurring funding, and an independent audit provides them with that much-needed reassurance. DOE issued a similar policy in April limiting the indirect costs to Institutes of Higher Education (IHEs) to 15% for in-process and future grants. Read more in our article, Changes Ahead for University Grants as DOE Limits Indirect Costs to a 15% Rate Cap.

Terminology is critical in accounting, so don’t be afraid to check a term if you’re unsure what it means. At NPact, we’re here to assist you every step of the way, from providing the tools you need to streamline your financial operations to offering expert consulting services. As 2025 unfolds, healthcare entities will continue to assess the benefits and challenges of private equity interests as compared to not-for-profit status. Understanding these nuances and risks can support an organization in making better operational and financial decisions. Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance.