The Nonprofit FAQ
| General considerations when planning an audit |
| The American Institute of Certified Public Accountants (AICPA) offers a 145-page Audit Toolkit on its website as a .pdf file and as a group of separate documents; it can also be ordered for $10 in printed form. The toolkit is intended for publicly-traded corporations -- not nonprofits -- but many of the issues and concerns it addresses have nonprofit counterparts, and in any case, the range of topics is very informative. -- Further information at http://www.aicpa.org/Audcommctr/toolkits/homepage.htm Don Griesmann wrote in NONPROFIT (http://www.rain.org/mailman/listinfo/nonprofit) on October 17, 2002: The board of directors/trustees needs to consider whether it wants an accountant or a certified public accountant. It may be that a donor or grantor has stipulated that the audit must be done by a CPA or a professional called an independent public accountant (IPA) in some areas. Why do you want an audit? Is it because it sounds like a good idea? Does a donor or potential funder require an audit? Is there suspicion that there may be some hanky-panky? The last issue calls for a different kind of audit. Audits generally do not catch thieves. (See http://www.nonprofits.org/npofaq/16/06.html for a discussion of how to approach this troubling sort of possibility.) Financial audits are usually done annually and generally have a CPA/accountant review the agency's financial policies and the resulting statements; after the review, the auditor issues a statement that they appear to be accurate (I am not an auditor so I make it simple). This statement may be "unqualified" -- meaning that the auditor didn't identify any problems or potential problem areas. Or it may include commentaries or warnings addressed to the organization's board and managers. Obviously, every organization would prefer to get a "clean audit." Some government contracts are now requiring CPAs to audit non-financial activities to review contract compliance. There may be other funders asking for that as well. Many nonprofits prepare a request for bid or proposal to be sent to selected CPAs/accountants. Coming up with a list of those who have performed nonprofit audits or have received the necessary continued professional education for federal nonprofit audits can take a while. Do some research. Talk with other NPOs in your area and see who they are using and ask if they are they satisfied. Contact the local United Way, the Association of Nonprofits for your state (http://ST.nonprofits.org/ with the two-letter postal abbreviation for your state replacing "ST") and any other umbrella organizations you may be affiliated with for their advice. There are a number of membership organizations where you can find possible bidders; you can also check if any bidders list an association. You can ask about organization to which the bidders belong. See for example -
The process of issuing this request for proposal or bid should be directed by the board with help from staff. Developing such a request can take some thinking. It should reflect what you want done, when you want it done and when a decision will be made. There can be a request for professional references, accreditations, certifications and they should be checked and contacted. Membership organizations that potential auditors belong to may also have codes of conduct and ethical standards that you should review in advance. The board should also develop a draft contract listing what it wants. Most CPAs and accountants have a form contract. That contract may not resolve all issues such as adherence to your own workplace policies, so it is helpful to have a draft for negotiation purposes. I always included the draft contract as an attachment to the request so that the bidders knew when they bid what we wanted. The request can state that the successful bidder will be required to follow your organization's policies on drugs and alcohol in the workplace, anti-sexual harassment, safety in the workplace, use of equipment and equal opportunity employment (within federal and state laws), if you have such written policies. If you want to do this, include a copy of the policies as attachments to the request for bids. Some NPOs have an audit committee that meets with the auditor prior to a final audit to review the draft and to be sure that it covers all aspects. It was my experience that details could be missed about one funder or other and we could be asked to amend the document later. I preferred to catch them before a final was completed. The audit committee or the full board should receive the final audit and have a briefing meeting with the auditor to go over findings and recommendations, if any. Copies of the audit should go to requisite organizations; be sure to list how many copies are needed in the bid. The board must also decide if it wants the CPA/accountant to complete the 990 or 990-EZ form and file it. I think that the 990 is a place to put a NPO's best foot forward, especially in Part III where the top four priories can be listed. Most NPOs are blank there. Completing that part effectively will require knowledge and information that may go beyond the scope of a typical audit. (See http://www.nonprofits.org/npofaq/18/85.html and http://www.nonprofits.org/npofaq/19/06.html for general information about 990s; http://www.nonprofits.org/bulletins/980418.html for comments on what program information a 990 should contain.) See also --
NOTE: This material in this article is fairly general and does not give you a full description of a request for proposal or a draft contract. You may want to consider securing an attorney knowledgeable in tax-exempt law to assist in these documents or with the process more generally. CAVEAT: I am required to tell you that I am an attorney in the state of New Jersey and it has not been my intention to give you legal advice. I may have given you legal information, but not legal advice. Don Griesmann Ventnor, NJ Posted 10/19/02 --PB |