To some, this question is equivalent to “Why would I stick a red-hot poker in my eye?” Going through an audit doesn’t have to be the worst experience in your life, but that isn’t the topic of today’s posting. I frequently get the question “Why do non-profit organizations need an audit?” There are many reasons why your financial statements should be subjected to the scrutiny of independent certified public accountants. Here are the most common ones:
• The by-laws of the organization require an annual audit of the financial statements.
• Affiliated fund raising organizations, such as United Way, may require recipient organizations to have an audit as a condition of receiving allocations.
• Lending institutions may require audited financial statements before making a loan and in each year that the loan has an outstanding balance.
• Potential donors, especially foundations, may ask for a copy of the most recent audited financial statements. Although it may not be a prerequisite to receiving funding from them, it is a tool that the foundation can use in its decision-making.
• The federal or state agency from which you are seeking funding requires an audit.
• Management and/or the Board of Directors believe that it is a “best practice” to have an annual audit.
This last reason is the one that I like the most because there is no outside interest that is forcing an audit. I have a friend who recently became a controller at a local church that had never been audited. He requested that his Board of Trustees hire a CPA firm to conduct an audit because he wanted to start his tenure with a clean slate and to have full accountability. What better way to demonstrate to your Board that you are above board, capable, and fiscally responsible than to open your books and records to professionals trained in auditing that will provide an opinion on whether the financial statements are free of material misstatements.
If you’ve never had an annual audit (or it has been a long time since your last audit), some may ask when you should start. Following are a few ideas:
• A year or two before launching a capital campaign
• If there is an expectation that you may be involved in a merger or acquisition
• Before starting a new program that may require some creative funding
• Construction of new facilities that may require interim or permanent bank financing
If you are wondering if the organization you are involved in should have an audit of your financial statements, give us a call.Categories: Definitions, Federal Awards, Financial Reporting, General Information, Governance, Uncategorized
Tags: audit, Best Practices, financial statements, reasons for an audit