independent audits for nonprofits
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The Importance of Independent Audits for Nonprofits
By Jon Shoemaker, CPA – Principal Gumbiner Savett Inc.
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Nonprofits and Transparency
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An independent audit can provide accuracy in numbers and proper reporting to:
Granting agencies
Donors
Other Stakeholders
Independent Audits
Many states require Section 501(c)(3) organizations to complete independent audits.
Revenue thresholds can range from $100,000 to $2 million.
Organizations not exceeding state limits may still be required an audit by grantor or funder.
Why an Independent Audit?
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The Audit Opinion
The audit opinion of the statements: Letter of internal control
deficiencies Your auditors are required
to understand your internal controls design and use.
They can suggest ways to improve controls and specific measures to implement.
Responsibility – the NFP is responsible to act on recommendations.
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CPA Performed Independent Audits
CPA Performed Independent Audits
Two types of independent audits:
Generally Accepted Auditing Standards (GAAS)
Generally Accepted Government Auditing Standards (GAGAS)
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Generally Accepted Auditing Standards (GAAS)
The rules for GAAS audits:
The testing of account balances such as cash, payables, revenues and expenses,
Require a consideration of fraud risk and an understanding of internal controls.
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Government Funded Organizations
Government funded organizations might require a compliance audit:
Performed under Generally Accepted Government Auditing Standards (GAGAS)
OMB Circular A-133 or a “Yellow Book Audit.”
This is required when the organization expends more than $500,000 in federal awards.
Generally Accepted Government Auditing Standards (GAGAS)
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Alternatives:
If you do not have an audit requirement, consider:
A Review of the Financial Statement
A Compilation
Both reviews and compilations allow for input from an outside CPA firm at a lower cost.
Suggestions for improvement in controls usually not provided.
Other Potential Alternatives
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A Review
Review Process
Independent CPA firm will: Obtain nonprofit’s financial
statements. Asks questions of management Performs certain analyses -
tests of revenue and expense change
functional expense percentages and liquidity
The financial statements are provided along with the accountant’s review report.
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A Compilation
Compilation Process
In a compilation, the CPA: Provides no tests or analysis
Ensures that the financial statements are prepared consistent with GAAP - Generally Accepted Accounting Principles.
A report attached to the financial statements explains that they were compiled from client records but not audited.
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Consult with granting agencies to determine which level of service they require.
For help in determining what type of audit you’ll need, ask your accounting professional.
Make Sure You are Compliant with Your Granting Agencies
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Jon Shoemaker, CPAPrincipalAudit & Accounting – Not for Profit Practice
Gumbiner Savett Inc.
1725 Cloverfield Blvd.
Santa Monica, CA 90404
www.gscpa.com
310-828-9798
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