Audits

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"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.

To qualify for specific sources of funding, such as the Combined Federal Campaign or to join other organizations, such as the National Health Council.

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