Nonprofit Audit Guide 2024 – Resources List
Audits: The Brewing Storm
NFC’s late summer session on nonprofit audits contained a few surprises, even for us. First, contradicting conventional wisdom, we had a very strong registration of almost 800 people — unusual for an August session. The response to our request for stories about audits in your own nonprofits was also much greater than usual. As we looked them over, we found that most responses were either about the steep and sudden increase in the prices of audits, or greater difficulty in accessing audits at all.
This appears to trace back to a “pipeline” problem in accounting: CPA firms are finding it harder to recruit the junior staff they would normally assign to audits, and since nonprofit audits tend to have lower margins, they’re the ones being eliminated. (For a discussion of this subject in greater detail, read the National Pipeline Advisory Group’s Accounting Talent Strategy Report, linked below.) This spells trouble for nonprofits with legal requirements for audits; when they can locate an auditor, the price may be two to four times what it was a few years ago, cutting into operating funds in ways that are problematic or downright impossible.
We discussed these larger systemic problems and made a commitment to follow up. But, in the meantime, there are things YOU can do to try to mitigate problems for your own nonprofit:
- Get clear on your audit requirements. Many states require audits above a certain threshold, and a number of those thresholds have been recently raised. Check what that threshold is so that a) you are in compliance, and b) you are not straining to obtain a formal audit that is unnecessary and could be replaced by other types of reviews. There are also audit requirements for nonprofits receiving federal money (the cap for that is now $1 million), and some states require audits for state funds above a certain cap.
- If any of your funders, public or private, require or request audits when you are not legally required to have them, you may wish to explain the problem and negotiate — either for coverage of the costs of those audits or for their acceptance of alternative statements or reviews that cover much of the same territory.
- Stay prepared! We heard on several occasions that auditors may be more likely to make themselves available to nonprofits whose books and processes are generally in shape than to those who require multiple adjustments of one kind or another.
This last entry connects to another point that was made repeatedly in the webinar: Getting a “clean” audit does not guarantee that your organization is not vulnerable to — or even not currently experiencing — fraud. This misconception is shared by a lot of boards and funders. As a case in point, we would remind you that the Detroit Riverfront Conservancy, where the CFO is being charged with embezzling more than $40 million over more than a decade, had annual clean audits during that period. If you are concerned about guarding against fraud, please check out our internal controls webinar from July. That organization had any number of red flags waving in plain sight.
Please let us know if the availability of audits has been a problem for your organization by commenting below with your story in brief.
Video:
Accompanying Slides: Download here.
Transcript: Coming Soon.
Insights
National Pipeline Advisory Group: Accounting Talent Strategy Report
This 2024 report analyzes the root causes of the accounting talent shortage and offers potential solutions and next steps forward.
The talent shortages of the past several years, coupled with strong demand for accountants and CPAs, have created challenges throughout the profession. Yet today we see the potential for meaningful change. Stakeholders from all areas of accounting — including CPA firms, finance departments, businesses, academia, government bodies, not-for-profits, the regulatory community, accounting associations, and state societies — have devoted substantial time and energy to understanding the talent hurdles and identifying positive solutions. The collective passion around solving the pipeline problem is encouraging. While the challenges are daunting, the members of the National Pipeline Advisory Group (NPAG) feel a genuine sense of optimism. We know that when the accounting profession pulls together to solve a tough challenge, some amazing things can happen.
Nonprofit Audit Guide
This thorough guide to independent audits from the National Council of Nonprofits connects with other resources from the Wallace Foundation and Propel. Below is a link to the guide, and another to the first step, “Selecting an Audit Firm.”
Read the guide. Or start with Step 1.
Tools & Templates
Audit Services RFP
This template from Propel Nonprofits serves as a sample of a Request for Proposal that your nonprofit may submit to a company for the preparation of yearly audited financial statements and related filings for a three-year period.
State Law Nonprofit Audit Requirements
Here is an interactive map of the United States that links to the corresponding state laws that address audits so you can determine what your state requires. These are accurate as of 2022; be sure to verify independently that the thresholds haven’t changed.
