Navigating the world of non-profit audits can feel overwhelming — especially for organizations focused on their mission rather than financial procedures and compliance.
But understanding audit requirements and best practices is critical for maintaining transparency, accountability and donor trust.
During our 30+ years as non-profit auditors, we’ve seen nearly every situation under the sun, and answered thousands of questions about the non-profit audit process. Here’s a short Q&A we’ve compiled to help your organization boost its knowledge and prepare for potential audits with confidence.
What is an independent audit?
An independent audit involves a comprehensive review of a non-profit’s financial records, accounting systems and operational procedures by an external professional. This independent professional is typically a certified public accountant (CPA), working under a service contract rather than as an employee.
Throughout the process, the auditor examines the non-profit’s financial statements to verify their compliance with Generally Accepted Accounting Principles (GAAP), noting any discrepancies between the two. The GAAP are established by the Financial Accounting Standards Board and serve as the standard framework for financial reporting.
The CPAs at Magone & Co can also provide risk management services, due diligence and make recommendations for improving internal controls.
Why are non-profits required to undergo an independent audit?
Requirements for audits typically arise from:
- Government agencies requesting audited financial statements
- Non-profits spending $750,000+ in federal funds annually
- State/local government service contracts
- State charitable registration requirements for fundraising
- Private foundation grant application processes
- Banking requirements for loan approval
Whether your non-profit requires a review, compilation or complete audit of your financial statements, we’ll impart the appropriate level of assurance to satisfy your donors.
What states require an independent audit?
State audit requirements for non-profits vary significantly across state lines. Most require independent audits under specific conditions, like annual revenue or contribution thresholds.
The majority of states also require submission of audited financial statements when renewing charitable registration or non-profit status.
However, your non-profit may be exempt from these requirements even in states with audit laws, as exemptions often depend on specific factors like annual gross income or contribution levels detailed in each state’s legislation.
States with mandatory audits for all non-profits include California, Hawaii, Illinois, Maine, New York, West Virginia and Rhode Island. Find out the laws for your specific state.
Why should a non-profit conduct an audit, even if not required by law?
Beyond legal requirements, non-profits may choose to undergo independent audits for several reasons:
- Enhanced credibility. Voluntary audits demonstrate your organization’s commitment to financial transparency — a quality increasingly expected by donors and the public.
- Funding access. Many foundations, private funders and government agencies require audited financial statements as part of their application process, making audits necessary for accessing certain funding opportunities.
- Governance best practices. An audit provides your board with professional assurance that financial statements are error-free, helping them fulfill their fiduciary responsibilities. Audits also serve as guardrails to identify internal financial controls that may be necessary to avoid opportunities for misappropriation of organizational funds.
At Magone & Co, our goal is to instill confidence that your records are an accurate representation of the current financial condition of your organization
From compliance to assurance
Remember, an audit is ultimately a tool that helps ensure your non-profit has the financial foundation it needs to pursue its mission effectively for years to come. Learn why you may need an external auditor to get the job done right.
For specific questions regarding your non-profit organization, contact the expert CPAs at Magone & Company for guidance.
