Nonprofit – Building Donor Confidence and Grant Compliance
Why Nonprofits Need Independent Audits
For nonprofit organizations, donor confidence is the currency of sustainability. Major donors, foundations, and grantors almost always request audited financial statements before making significant gifts. A clean audit demonstrates that your organization is well-managed, transparent, and worthy of trust. At Nova Tax & Accounting Services , our audit and assurance services are designed to help nonprofits achieve these critical goals.
Required Audits for Nonprofits
Many nonprofits are required to have financial audits based on their size, funding sources, or governance requirements.
Single Audits for Federal Grant Recipients – Nonprofits that expend $1 million or more in federal awards during a fiscal year are required to undergo a Single Audit (also called a Uniform Guidance audit). This examines internal controls over federal programs and tests compliance with specific grant requirements.
State and Local Government Requirements – Some states, including Virginia, require certain nonprofits to undergo audits based on their revenue or assets. Virginia law also requires localities with populations of 3,500 or more to have annual independent audits.
Grant and Funder Requirements – Many private foundations and government grantors require audited financial statements as a condition of funding.
Governance Best Practices – Even when not required, many nonprofit boards choose to conduct independent audits to fulfill their fiduciary responsibilities and demonstrate accountability.
The Audit Process
A financial audit involves an independent CPA examining an organization’s financial records, internal controls, and compliance with applicable laws and regulations. The auditor issues an opinion on whether the financial statements are presented fairly, in all material respects, in conformity with GAAP.
The audit opinion can be:
Unmodified (clean) – The financial statements are presented fairly
Qualified – Except for specific issues, the financial statements are presented fairly
Adverse – The financial statements are NOT presented fairly
Disclaimer – The auditor could not complete the audit
Preparing for a Nonprofit Audit
Organizations can prepare for their audit by:
Maintaining clean, up-to-date books throughout the year
Documenting all internal controls and policies
Reconciling all bank and investment accounts monthly
Retaining supporting documentation for all transactions
Conducting a pre-audit self-assessment
Common Nonprofit Audit Findings
Auditors frequently identify several common issues in nonprofit audits:
Inadequate internal controls – Many smaller nonprofits lack proper segregation of duties, leaving them vulnerable to errors or fraud.
Incomplete documentation – Missing receipts, contracts, or board minutes can lead to audit adjustments.
Improper revenue recognition – Misclassifying restricted versus unrestricted funds or failing to properly record conditional contributions.
Inaccurate functional expense allocation – Improper allocation of expenses between program services, management and general, and fundraising.
New Transparency Requirements for Nonprofits
The IRS has announced plans to revise Form 990 to require clearer reporting on government contracts, grants, and fiscal sponsorship arrangements. Nonprofits should prepare for enhanced scrutiny of how public funds are managed and reported.
Why Choose Nova Tax & Accounting for Your Nonprofit Audit?
At Nova Tax & Accounting Services , we specialize in assisting nonprofit organizations by providing independent financial statement audits, reviews, and compliance support that promote transparency and enhance financial reporting. Our audit and review services include financial statement audits, reviews, and compilations designed to meet the unique reporting requirements of nonprofit organizations.
Schedule your free consultation today to discuss your nonprofit’s audit needs.