In many of the most fundamental ways, a nonprofit is run in an entirely different fashion than a for-profit organization, from its hierarchical structure to asset management. However, a lot of the same rules still apply. In many states, the law requires audits, while in others, it’s not necessary to conduct an one, but it’s not a bad idea to consider it anyway if you plan to apply for government funding or if you wish to maintain a good reputation with the public. Here are a few reasons your not-for-profit might consider obtaining audit services.
1. To Abide By State Law
Laws vary by state not only in regards to whether or not nonprofit organizations are required to be checked out, but also under which conditions. In most states, not-for-profits are required to submit reports in order to raise funds. Some other reasons why certain states require them include meeting or exceeding a threshold for charitable donations, the total amount of fiscal year revenue, charity registration renewal, and other indicators. The type of service required varies also. In some states, depending on the circumstances, a full audit is required. Other states or different circumstances require only a review or a compilation.
2. To Maintain Your Good Reputation
When nonprofit organizations are in the news, it’s often not because of charitable deeds or honorable accomplishments. It’s because they are being accused of or being investigated for fraud. Seeking audit services is a good way to help prevent a situation like this from occurring. The public, especially those who contribute or have contributed to charitable organizations, appreciate financial transparency. People want access to information, and when they’re denied that access, they might feel that you have something to hide. Keeping financial records available to the public can help you avoid this issue.
3. To Apply for Funding
If you’re hoping to apply for a grant or other funding, there’s a good chance you’ll need to conduct an audit. Many agencies, especially the state or federal government, want proof that your nonprofit runs a tight ship before providing funding of any kind. Some private organizations do, too. If you’re up for a substantial grant or plan to apply for funding now or in the future, it’s a smart idea to begin conducting them yearly. Showing that you take care and pride in conducting your financial business by the book is always advantageous.
Because not-for-profits have a completely different financial culture than for-profit businesses, it seems strange that it would be necessary for a nonprofit to conduct a yearly audit. However, despite the fact that it is mandatory by law under certain circumstances in many states, it’s often simply a matter of good business practice to choose some kind of regular audit services, be it for a full audit, a review, or a compilation. Proving your organization to be fiscally responsible and reliable is an easy way to open the door to funding opportunities and to maintain a positive image with the public and, especially, with your contributors.