"Audit" means several things, the simplest of which is testing documentation or processes for accuracy and comprehensiveness against a report or a set of standards. The auditor examines materials and then issues an opinion as to whether what it has examined complied with what it is being tested against, and how well. Your organization will usually pay for an audit, and depending on the type and when it is requested, the preparer may also prepare financial documents for your organization, such as year-end statements and depreciation schedules.
Audits may not detect whether there is fraud in a system; they are only required to express an opinion as to whether the documentation presented gives a fair representation. An "unqualified" opinion is a statement that the organization is in compliance. A "qualified" opinion is a statement that lists issues that must be resolved before the organization is in compliance.
Your organization may be audited by an independent professional, such as a certified public accountant (CPA), or by a group to whom it reports, such as the IRS or an agency that wishes to review performance on a contract. Audits may focus on the degree to which your activities match a project plan or set of deliverable, or they may focus on accounting systems or other functions within the organization.
The federal government does not require that nonprofits have a financial audit by a CPA unless they receive funds above a threshold amount ($25,000, including "pass-through" funds, as through a state or local agency). Some states require annual audits if their revenues are above a threshold amount, and some states may accept a CPA "review" rather than an audit—this service is not as comprehensive as an audit but may cost only half as much to obtain.
Organizations that spend $300,000 or more in federal funds (including "pass-through" funds) in a year are required to have a CPA audit as described in the Office of Management and Budget's (OMB) Circular A-133.
OMB Circular A-133 is available at OMB's website. The American Institute of Certified Public Accountants (AICPA) is an advocacy and standards body for CPAs, which publishes "generally accepted accounting principles."
Why—and When—Should We Be Audited?
When you meet federal or funder requirements for an audit.
Because you have had a "qualified" opinion on an audit in the past and wish to assess whether the issues have been resolved.
When you want to assess the financial management of your organization as part of an effort to strengthen it.
As a way to document, for the benefit of potential donors or funders, the strength and responsibility of your organization's financial management.
How Long Should it Take and What does it Cost?
An audit should never take a full year to conduct, especially for a tiny organization. Three months absolute tops.
One group's audits take approximately 2 months and they pay $7,000. Another group pays $6,500.
A cost-saving tip - We did change to a fiscal year which ends on 9/30 so that we could get better rates and availability of accountants.
Another potential cost-saving tip - What about asking a larger organization to be your fiscal agent for this event? The funds could go to them, you would pay them a small fiscal agent fee, which would be a lot less than the cost of an audit, and if they are a larger organization, they would already have an audit.
- A fiscal agent would be a good option assuming they are audited....BUT some grant funders won’t fund entities under fiscal agency.
- Fiscal agents take about 9% as an admin fee, and that may be the funders’ sticking point...if they object. In Colorado, there is a nonprofit “incubator” whose mission is to serve as fiscal agent for fledgling groups. The Colorado Nonprofit Development Center’s (www.cndc.org), only mission is fiscal agency. They charge 9%.9% also fits conveniently in most grants’ admin limits of 10%. I and several others launched a startup under CNDC, and we quickly discovered that a pitfall of fiscal agency is that most foundations would not entertain grant proposals from us.
- You might be able to get away with a “review” in lieu of a full audit. Shouldn’t hurt to ask.
- I’ve worked with Guzman and Gray for a number of years, a CA accounting firm, and they might be able to give you a good deal on a 990-EZ and a review.
- We've been pleased with Gray Gray & Gray in NYC.
- Here’s another referral, by the way: http://www.bbdcpa.com/