Nonprofit Audit Preparation and Compliance
When facing an audit, a nonprofit organization must demonstrate compliance with the various regulations set by the IRS, State, and specific state requirements. Gambling is an example of an event that often has specific requirements. Waiting until an audit is requested can be highly disruptive to daily operations. It is much more efficient to proactively maintain compliance,
This guide outlines the requirements for meeting audit standards and provides a strategic plan to prepare your organization for any financial oversight.
Types of Audits and Reviews
Here are the most common types of audits your organization may encounter:
Financial Audits: Provide the highest level of assurance that financial statements are free from material misstatement.
Review Audit: Provides limited assurance and is narrower in scope than a full audit. It focuses on analytical procedures. These are often requested by the Board .
Compliance Audit: A review of your current level of compliance with Federal, State, and local government requirements..
Internal Audits: Conducted by the nonprofit’s own staff or a consultant to evaluate current risk management, internal controls, and governance processes.
Program Audits: Focus on the effectiveness and efficiency for a specific program It helps determine if funding goals are being met.
Operational Audits: An examination of operational processes
Regulatory Audit Requirements
1. IRS Audit Requirements
990 Filing: Nonprofits must file an annual Form 990 with the IRS.
Public Disclosure: Form 990 is a public document and must be made readily available for public inspection. This applies to other documents as well.
Documentation: Organizations must keep meticulous records of financial activities, board meeting minutes, and operational activities to substantiate their 990.
Compliance Review: Submission of audited financial statements in conjunction with the 990 form will satisfy the requirements of a Compliance Check.
Consequences: Failure to file Form 990 for three consecutive years or meet audit requirements can result in penalties, that may include the revocation of tax-exempt status.
2. State Audit Requirements using Washington State as an example. Other states will have their own set of requirements.
Threshold: Nonprofits in Washington State are required to undergo an independent financial audit if their average annual gross revenue exceeds $3,000,000 over the last three preceding years.
Charitable Solicitations: Nonprofits soliciting contributions in Washington must register with the Secretary of State’s Charities Program.
Washington State Gambling Commission (WSGC) - Raffles: Only specific registered charitable organizations can conduct raffles. You must register with the Charities Program and obtain a raffle license from the WSGC.
Plan of Action
The IRS offers some tools to assist with your Federal compliance. Your state a local government may offer similar tools, or they may not. Donors often have their own audit requirements, however be compliant with these governmental requirements will make donor requirements easy to provide.
Meeting these requirements yourself can be done, but it will consume a large amount of time and expense. The other option is to have the experts at Sims Online Bookkeeping do this for you. We can be reached at 509.939.3120, or chuck@simsbookkeeping for a free consultation regarding your specific needs.
