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Does your New Nonprofit Require an Audit?

June 16, 2017

Organizations that are audited tend to be more highly favored in the face of the community and potential investors—two opinions new organizations depend on—learn more.

A question new nonprofits often grapple with—Do we need an audit? Of course the answer is, “It depends”. There are several factors that determine whether or not you are required to have an audit. Some organization’s by-laws mandate that they have an annual or bi-annual audit. Several states have audit requirements that are based on the amount of revenue they earn during the fiscal year.

When is an audit required?

In Massachusetts and Rhode Island, an organization receiving $500,000 or more of gross receipts is required to have an annual audit. Nonprofits that expend/earn more than $750,000 in direct federal funding or federal funding passed through the state or other agency during the fiscal year must have an audit in accordance with Uniform Grant Guidance.

What if my nonprofit isn’t mandated to have an audit? (i.e. less than $500,000 in gross receipts)

Staff and board members should regularly check financial statements and accounting policies and perform internal reviews regardless of whether or not your nonprofit is required to be audited.

Many public and private foundations and funders (including governments) require charitable nonprofits to submit audited financial statements as part of the grant application process and often times it is a condition to receive funding.

In addition, some “charity watchdogs” like Charities Review Council take into consideration whether an organization has an annual independent audit when rating charitable organizations.

Stakes are higher for a newer organization

It is widely accepted in the charitable community that a nonprofit can build its reputation for integrity, transparency and professionalism by having a regular independent audit conducted (made available to the organization’s stakeholders and to the public). If you are a new organization, it is more important than ever to solidify your reputation in the community and among stakeholders and investors.

The audit is the ideal way to communicate your financial health; however, if your organization is challenged by limited resources, a review or compilation might be a helpful alternative to an audit. The objective of a financial "review" (conducted by an independent accountant) is to analyze the nonprofit's financial statements and determine whether the financial statements are consistent with generally accepted accounting principles. A compilation is, in contrast, a compilation of financial records into a format required by accounting standards.

Wondering how you can start the audit process for your nonprofit? Our Not-for-Profit specialists can help.

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