Nonprofits are critical organizations for communities. They fill in the gaps in services, address social issues, and promote civic engagement. Managing the fiscal responsibilities that come from receiving donations, grants, and government funding requires industry expertise. To stay compliant with government regulations and show lenders and donors they are good stewards of charitable funds, audits for nonprofits are required. In this article, we discuss the different types of nonprofit audits you can expect to encounter as a charitable organization.
Two Types of Audits for Nonprofits
Performing a nonprofit annual audit ensures the organization is in compliance with legal and regulatory requirements, uncovers any irregularities to detect and prevent fraud, and identifies areas of improvement. The primary types of audits for nonprofits include independent nonprofit audits and single audits.
Independent Nonprofit Audits
The independent audit is conducted by third-party CPA auditors, such as our team of experts at Assurance Dimensions. The main focus is to evaluate the financial statements, records, business transactions, and internal controls to ensure accuracy, compliance with accounting standards, and proper use of funds. Depending on the organization or foundation, this type of audit for nonprofits may be required by law, donors, or the board of directors. It also creates financial transparency between the nonprofit organization and its donors and helps with funding during the grant application process.
Single Audits (Uniform Guidance Audit)
Single audits, also called Uniform Guidance audits, are triggered when a nonprofit organization receives federal funding through grants or contracts and expends more than $750,000 in a single year. This type of audit for nonprofits ensures compliance with federal regulations and assesses the organization’s internal controls over financial reporting and compliance. It is mandated by the Office of Management and Budget (OMB) and must be submitted to the Federal Government via the Federal Audit Clearinghouse on behalf of OMB. Single audits are also more comprehensive as they cover both financial and compliance aspects of the nonprofit organization.
Alternative Guidance
Agreed upon procedures
An agreed-upon procedure is a type of assurance engagement where the organization and a third-party auditor agree to perform specific procedures. It results in a report provided by the third-party CPA outlining the findings. Agreed-upon procedures are tailored as the nonprofit and CPA work together to identify the areas of concern to be examined.
Unlike the other types of assurance engagements mentioned above, an agreed-upon procedure has a limited scope of work. For example, it can focus on specific areas of the nonprofit, such as operations, financial information, or internal controls. Since it is limited, there is no comprehensive assurance or opinion letter provided by the third-party CPA, but organizations receive a report outlining the findings.
Nonprofits can also opt for a review or compilation; however, it will not serve as a substitute for an audit for nonprofits when required by federal law. Because audits are more comprehensive and time-consuming, and they are expensive. A review or compilation is a cost-effective option to meet donor or funder expectations and show good governance and accountability practices.
Select an Experienced CPA Firm
If you’re unsure what type of audit or assurance engagement your organization needs, let our team of experts at Assurance Dimensions help. Our accounting team has a proven track record in nonprofit audits. Contact us today to learn more.
