Nonprofit organizations are a major part of society as they address various societal needs. For them to do their work in an organized manner and to fulfill this requirement they need financial integrity and transparency that a financial auditing service can provide them.
A financial audit is not just a compliance requirement but they are much more than that for a nonprofit organization for maintaining the trust and support of the stakeholders. These financial audits also help them implement continuous changes for the betterment of their services. There are also several compliance requirements for a nonprofit organization and financial audits also help in maintaining those requirements.
Nonprofit financial audit best practices
Nonprofit organizations must maintain accountability and financial transparency so there are some practices that they can use such as:
- Experienced auditor
They need to take the services of a well-reputed auditing firm or an auditor who holds diverse expertise. It is important to make sure that they have experience in performing financial audits for nonprofit organizations.
- Knowledge of regulations
The auditor should have the relevant knowledge of all the laws and regulations such as Generally Accepted Accounting Principles [GAAP] and other requirements of these organizations.
- Assessment of internal policies and controls
The auditors need to assess the internal controls and also strengthen the policies of the organization for a smooth workflow.
- Maintenance of documents
For a nonprofit organization, it is a major implication for them to maintain all the financial documents properly without any disregard towards them. All the financial transactions, any kind of receipts, and even invoices should be looked after so that they can be useful during the times of the financial audit within the organization.
- Involvement of the board
The members of the board should be involved in the audits so that they can review the audit plans and also put their valuable input into the process for better results.
It is necessary to maintain transparency with the stakeholders and to share the authentic audit results with them. Any type of misguiding towards them can raise serious questions about the integrity and authenticity of the organization.
By forming an audit committee and by taking the follow-ups of the audit findings then on profit organizations can make sure that a successful and effective audit practice has been implemented.
Compliance requirements for the nonprofit financial audit
Nonprofit organizations are required to adhere to various compliance requirements and these requirements can depend upon the size of the organization.
Nonprofit organizations are accountable for the state and local laws and therefore they must ensure that they fulfill all the necessities within these. The organizations are also required to follow the GAAP which helps them to adopt the accounting principles among other financial accountability. Non-profit organizations also provide nonprofit-specific reporting which is an additional thing apart from their financial statements. This includes the expansion statements of the programs, any activities, or other requirements of the organization.
It is mandatory for nonprofit organizations to align with this compliance and to get in contact with experienced auditing firms.
Nonprofit financial audit challenges
It is not that easy to conduct a financial audit as there are various challenges. These challenges can be different because of the nature of these organizations.
The organization mainly relies on funding and grants and tracking these and verifying the accuracy can be very challenging because there are many restrictions on these findings as well. The nonprofit organizations always handle very limited resources and while implementing these audit processes it can be hard for them because it is an intensive resource process. There is also a weakness in the internal controls of these organizations and these setbacks always hamper their programmes. Adherence to the regulatory changes is a must and therefore the non-profit organization needs to stay up to date with all new regulatory changes so that they can work smoothly.
There are many other challenges as well but it is important for nonprofit organizations to address these challenges and to not avoid them. Transparent communications, accountability, and compliance with the regulations and laws can help in dealing with these challenges.
There is a huge value of the financial audit in the nonprofit organization as it provides a better future and also strengthens their core values and beliefs. With the help of the auditors, they can address their issues and can work more efficiently on their mission which is to serve the community.