Nonprofit

Does My Nonprofit Need an Audit?

For many businesses, “audit” is a frightening word. When we hear about audits, it’s often in the context of a tax discrepancy – your business failed to comply with certain standards and now the IRS is on your back. Let’s be clear: this is the case in many situations, and federal tax compliance is extremely important, but audits aren’t always a bad thing. In fact, an independent nonprofit audit can be quite encouraging, a reassurance that your company is operating with integrity and free of accounting missteps. Whether your nonprofit needs an audit, however, is a question that depends on numerous factors, like funding, state laws, charity, and organizational goals. 

Types of Nonprofit Audits

Most companies are familiar with an IRS audit. This is the one you try to avoid by adhering to federal tax requirements and the generally accepted accounting principles (GAAP). The IRS will thoroughly examine your tax and accounting paperwork, and potentially dish out penalties for certain discrepancies by operating through mail correspondence or a field agent. 

Independent audits on the other hand, are often less anxiety-inducing. They can be performed by a state agency or, more frequently, a knowledgeable CPA (like the ones at Cg) and determine whether or not your nonprofit’s accounting and bookkeeping practices comply with GAAP. These audits are sometimes required, but can also be self-imposed for the purpose of financial transparency and reassurance. 

When is an Independent Nonprofit Audit Required?

Even if the IRS hasn’t targeted your nonprofit for an audit, certain circumstances might necessitate one from a certified CPA or auditing agency, specifically if:

  • Your nonprofit receives more than $750,000 per year in federal funds.
  • Your state’s laws require you to register it as a charitable/fundraising organization or because the company has passed a certain income threshold.
  • Your nonprofit has a contract with a state or local government that requires one.
  • Your nonprofit is applying for a particular loan or grant that requires one.

In cases like this, you can hire a qualified Cg CPA, who will complete the audit and present a report, which you can submit to the government, foundation, agency, or anyone else. 

Benefits of Voluntary Nonprofit Audits

Why subject your nonprofit to an audit if you don’t have to? It’s a good question, and one with several answers. 

  • Promoting Transparency: As a nonprofit, you want to influence positive change, and you don’t want your integrity clouded by what could be perceived as duplicitous accounting practices. Regular independent audits ensure transparency for your employees, board members, donors, and the community you serve, building essential trust both inside and outside your company.
  • Ensuring Tax Compliance: Because a nonprofit receives funding from various sources – like federal or state agencies, donors, grants, and more – taxes can be a complicated endeavor, one that you don’t want to mismanage. An annual nonprofit audit report from one of Cg’s trustworthy CPAs will help your nonprofit maintain tax and GAAP compliance, so you can feel confident that the IRS won’t be showing up on your doorstep for a federal audit and potential penalties. 
  • Maintaining Tax-Exempt Status: If your nonprofit is tax-exempt, the Internal Revenue Code states that none of its earnings can benefit private shareholders or political campaigns, or it can lose its tax-exempt status. One way to prove this is through an independent audit, which will reveal exactly where your funds are allocated.  
  • Grant and Loan Applications: Certain grants and bank loans also require independent audits. Do you anticipate using grants and/or loans as a consistent income source? Having a nonprofit audit already on file will save you a whole lot of time.

Cg’s Nonprofit Audit Services

Your nonprofit audit will deal with sensitive and important information, and it’s a process that will help your company continue pursuing positive change. So, you want a CPA team that’s both trustworthy and thoughtful, independent auditors who take time to understand your mission. Our NJ CPAs want to understand the story behind the numbers, what makes your nonprofit tick. Plus, we really know our way around an audit. Four decades of experience working with nonprofits has imbued the Cg team with unmatched expertise. We’ll execute top-notch audits that bolster your organizational transparency, preserve your tax compliance, and ensure your nonprofit’s continued financial success and positive community influence. If you need to know what taxes do non-profits pay visit our non-profit industries page.

Learn more about our nonprofit accounting services.   Call Cg at 732-676-4100 or contact us today to taxes, audits and your nonprofit.