| When is it appropriate for a nonprofit organization
to have a full financial audit and how do we know if a simpler
financial "review" would be okay? The first thing
we say is - talk to your accountant. The problem here is
that many smaller nonprofits don't have an accountant and
even the ones that do may get talked into a higher priced
audit when they really don't need one.
The biggest worry comes when you sit down to write grants - it
looks like every grantor on the planet requires one. Since there
are no specific IRS rules stating that you HAVE to have a full
audit, most people go by what grantors require. Since 1990 nonprofit
organizations receiving large federal grants are required to do
full audits. "Large" is considered $300,000 or more.
With other grantors that require full financial audits, you have
to gauge the expense of the audit against the potential funding.
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| A
General Rule of Thumb: |
|
Annual budget under $250,000 |
no review or audit needed |
|
Annual budget between $250,000
and $1 million |
review only |
|
Over 1 million |
full audit |
In California, federal grants or not, nonprofits with
budgets of $2 million or more are required to conduct
an annual financial audit.
Most grantors do not expect small nonprofits to have
audits done and it's perfectly okay to contact the grantor
and see how flexible they may be on the financials. And
keep in mind: if you are a small nonprofit and the potential
funder is absolutely strict about the need for a full
audit than chances are they are looking to fund only those
larger organizations that already have those types of
financial controls in place and you are probably barking
up the wrong tree for funding.
When you do get to the point where you need a full financial
audit - here is a great checklist for preparing for it!
http://www.nfconline.org/main/info/guides_audit_prep.htm
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