March Madness or Audit Madness
NFP Partners provides services to a variety of nonprofits, including participating in the madness of preparing for the annual audit. We often have conversations with our nonprofit clients regarding the necessity of an audit and if a rotation of audit firms is a “best” practice. Throughout the year, we work with clients to ensure that our tracking schedules (temp restrictions, prepaid expenses, deferred revenue, receivables and liabilities) are up to date, bank reconciliations are completed, balance sheet accounts are reviewed and reconciled, internal control procedures are followed and budget variance explanations are prepared. Even with having those things all done timely during the year, it still seems to take forever to complete and compile the requirements of the auditor’s PBC (prepared by client) list. The long and short of it is that there's an investment in time and expense to prepare for an audit. For a small nonprofit, the audit preparation costs – plus the fees – may be difficult for the budget to handle. For any size nonprofit, an audit firm rotation requires an investment in orienting the new firm to the organization in addition to the preparation costs.
So, should a small nonprofit opt for a financial review instead of an independent audit? There are circumstances that may trigger the requirement for an independent audit. These include:
- Specific requirements of foundation, federal, state or local government funders
- Requirement of submission to the state for the annual charitable solicitations reports
- Requirement of financial institutions for loan transactions
- Requirement of an additional A-133 audit if the expenditure of federal funds is in excess of $750,000 in the fiscal year
If a nonprofit does not meet the above requirements, a financial review is an option. So what does a financial “review” entail and how is it different from an audit? The “review” is conducted by an independent auditor and examines the organization’s financial statements to determine whether they are consistent with generally accepted accounting principles. The auditor does not conduct the same level of analysis or include an examination of internal controls. A review will provide some assurance of the financial statements through a review for material issues and obvious deviations from GAAP, but testing of transactions is not conducted.
So, should any nonprofit solicit and rotate audit firms on a regular basis?
Takeaways from AUDC 2016
Earlier this month I attended the Abila Users and Developers Conference (AUDC) in Austin, Texas. The conference is an annual event and brings together Abila’s software users, business partners (like us), vendors that offer complimentary software applications or services, and various other organizations having a stake in the not-for-profit world.
Normally, affairs like this are not my favorite pastime, but this one exceeded my expectations. It was a great opportunity to personally connect with the people we work with at Abila, acquire some relevant training (CPE approved), and get a sense where business software for the nonprofit sector is going. Austin was nice, too, boasting first-class accommodations at the conveniently located new downtown JW Marriott and wonderful weather. Spring had definitely sprung with people in shorts, sandals and tank tops.
Let me take off on where business application software, such as accounting, fund raising and membership management (Abila’s big three) is going. Not that this is unique to nonprofit world, it can be summed up in three words: Cloud, Mobile, Integration.
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Lee Bengston, CPA