Nonprofit organizations serve the public using funds contributed from donors, and are exempt from paying income tax. Because of their reliance on donors and their tax benefits, nonprofits are held accountable to their donors and the federal government.

Internal Audit process involves

– Evaluating the organization’s internal controlling and monitoring processes, including an assessment of the annual audit of financial statements and accounting structuring.

– Advising the management or the supervisory body of the organization on main areas to be improved through providing them with a detailed report based on unbiased findings of our audit. Recognizing that auditing is more than the inspection of annual financial statements, we consider these findings a road map that would allow the management to concentrate on the principal challenges.

– Monitoring the implementation of these recommendations, and accordingly offering a final evaluation for decision makers based on the level of this implementation.

Nonprofit Audit

There are a number of elements that an independent auditor will scrutinize in a financial audit: First, advise on setting up a mechanism; second, audit the established system.

Accounting Practices:

Nonprofit audits pay special attention to an organization’s accounting practices. The Internal Revenue Service or independent auditors carefully analyze the accounting system of nonprofit organizations; as tax-exempt entities, nonprofits must be extra careful to avoid unethical accounting practices or costly mistakes.

A financial auditor will analyze an organization’s system of internal controls. Internal controls are policies and physical safeguards designed to protect an organization’s cash and financial records from theft or mismanagement. An auditor will also review the results of internal controls by comparing relevant metrics, such as the number of identified accounting errors, against previous periods. Make sure your accounts are in order before an audit begins to avoid raising concerns about your accounting practices.

Management of Contributions/Donations:

Nonprofit organizations have a fiduciary duty to use income from contributions in responsible ways, so managers must pay careful attention to the ways in which they distribute their contributed income.

A comprehensive nonprofit audit will analyze the way contributions are put to use by computing the relative percentages of each type of income distribution and comparing the results with other organizations serving a similar area of need. An auditor will look into the salary levels of top managers, as well as expenses for bonus pay, vacations and other incentives to ensure that money is being spent wisely. (If the organization holds any investments, an auditor may analyze their historical and expected future returns to ensure that money is being invested wisely.)

Financial Reporting:

Effective nonprofit organizations regularly generate internal reports and financial statements to keep managers up to date on the financial situation of the firm. A nonprofit audit will analyze an organization’s management information system – the system that facilitates sharing of financial information and communication – and review internal reports for the period beginning after the previous audit.

Nonprofits also submit regular reports to government authorities, including the IRS. A thorough audit will review an organization’s reporting procedures to ensure that reports are accurate and submitted in a timely manner.