What is the Procedure for the Audit of a Non-Profit Organization?

Minakshi Bindhani

03 Mar, 2023

An audit for a non-profit organization involves examining the financial records to ensure it complies with the requirements of a tax-exempt entity. The auditor needs to find these requirements for its non-profit status.

Non-profit Audit

The Non-profit audit is designed to help non-profit organizations as a fully independent audit process. The National Council of non-profits provides statutory regulations for charitable non-profit organizations, and it is different from state to state. The audit has given a chart that suggests all states’ audit requirements. Using this chart, an organization determines whether the state provides independent audits of non-profit organizations and under which circumstances the audits occur.

Using the Non-profit audit, the Board of directors helps the organization during the audit, and it also helps to progress through  independent audit:

• Finding and hiring an independent auditor.
• Preparing the documents for evaluation.
• Reviewing the auditor’s work.

These procedure benefit the non-profit in receiving federal funding and help with special auditing requirements.

Procedure

1. Awareness of statutory Law Audit requirements
    The state and federal regulations required them to conduct an independent audit. The state law and federal law audit requirements for the organizations, it is better to be at least aware of the annual budget or the funding sources. The following audit resources help the organization:
   • Federal Law Non-profit Audit Requirements
   • State Law Non-profit Audit Requirements
   • Non-profit Accounting Audit Resources
2. Manage a pre-audit meeting
   A pre-audit meeting is between the non-profit internal team, which will work with the auditors and the audit team. The consultation is beneficial to understand the actual audit process. During the pre-audit meeting, specific questions are asked regarding documentation, timeline, and the needs of the auditors throughout the audit.
3. Assemble the audit documents
   The pre-audit meeting as a guide in the organization helps the non-profit audit team prepare the necessary documents for the auditor’s fieldwork. The auditor reviewed the documents to prepare the audit; such documents are as follows:
   • Financial year^[1]-end reconciliation statements and bank statements;
   • List of grant funds received or expected to be received;
   • Fixed assets and depreciation schedule;
   • List of physical items for sale;
   • All grant awards and other related correspondence;
   • General ledger for the fiscal year;
   • Accounting manual and financial management policies;
   • Payroll tax reports and  timekeeping records, etc.;
     During the pre-audit meeting, the auditor asked specific questions about the documentation to be prepared for the non-profit audit.
4. Plan for the Auditor’s Field Work
   The auditor visits the entity to conduct the fieldwork and examine the financial operations. The auditor coordinates with the logistics team to organise some of t crucial details.
5. Organized
   The auditor prepares the non-profit accounting audit to be organized. Taking advantage of the pre-audit meeting ensured that the documents must be ready for the auditors. Usually, doing so saves much considerable amount of time and money. Also, give enough time to get every document together. Preparing for an independent audit takes time and faces challenges.
6. Communication
   The non-profit audit process is to be accessible to communicate. The audit is required to involve the audit team as much as possible.
   After the pre-audit meeting, the audit team needs to understand the importance of the audit. Therefore, it is required to gather the relevant document for audit.
7. Engagement Letter
   The audit’s responsibility is to list the engagement letter with the auditing firm. It helps set a future risk assessment and gives a realistic audit vision.
8. Provide details to the Board
   After the audit, the Board must know about the audit process. Also, they need to understand the financial statements and the implications of the opinion letter.
   However, capital business solutions provide accounting software for nonprofits, government agencies and other municipal entities. The accounting software helps the organization to strengthen its internal accounting procedures.

Conclusion

A nonprofit organisation (NGO ) is a social institution operating its social activities with public donations. So, making the accounts and financial statements is needed to show the performance to the general public. Independent Chartered Accountant also audits their accounts. The procedure for auditing is effortless. Like auditing for other business accounts, the auditor will audit the first-day book with all previous data. After this, he will check ledger accounts and trial balances. Checking receipt and payment accounts and income and expenditure accounts are crucial in auditing NGOs.

Also Read:
Know All About NGO Audit
What Are The Basic Principles Of Auditing?