Who’s Interested in Nonprofit Audits

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The word audit often conjures up negative and fearful emotions. However, an audit doesn’t have to be daunting. In fact, an audit is simply an evaluation of the organization’s accounting systems to verify the accuracy of its financial data. If the organization is following the IRS and GAAP guidelines, there is no cause for worry.

One of the advantages of experiencing an audit is the organization then has a profession assessment about its financial practices and financial statements. This can be reassuring as to the direction of the organization. In addition, it may unveil some unforeseen financial pitfalls that can be remedied with some readjustments.

An audit must be performed at the end of the fiscal year. This is a 12-month period determined in the bylaws of the organization. It is considered good financial management when an audit is performed by an external auditor.

It is understandable why nonprofits are sometimes apprehensive about being audited. A bad report, even if it is false, can damage a nonprofit’s reputation indefinitely. Various groups of people are watching a nonprofit to make sure they are in compliance with nonprofit accounting standards.

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Groups Who are Influenced by the Nonprofit’s Audit

  • Donors: A good report from an audit will reassure donors that giving to the organization is a wise and trustworthy investment.
  • IRS: If the IRS sends a letter requesting an audit, the organization can show them the external audit report.
  • Grant Makers: Before an organziation is rewarded grant money, they are required to show audited financial statements to demonstrate their financial stewardship.
  • Nonprofit Watchdogs: These groups secretly investigate nonprofit organizations in order to uncover any wrongdoing. What they uncover is ususally reported directly to the media.
  • Stakeholders: Nonprofits have stakeholders who are the individuals and groups benefiting from the organization. Stakeholders view audits has proof of integrity.