Our organization is conducting a fundraising campaign and we are looking into applying for several grants. Almost all have the requirement that we have an Audited Financial Statement. I thought that odd for a group that just has a checking account with never more than a few thousand dollars in it at any one time. But I suppose I'll have to call a CPA to audit our finaces so that we may qualify for these grants.

How many other organizations have their financial statements audited? What is involved and what is the cost?

We are audited annually. It runs about $6000 which covers 3 checking accounts two CDs, a money fund account, and 4 endowment funds. We wrote nearly 1500 checks last year and pay 4 employees. We have about 50 temporarily restricted funds.

That is a fairly common requirement, and I suppose speaks to what percentage of funding goes to 'overhead' and admin salaries vs investing in the collection and mission. For a small operation (financially) you may be able to get away with copies of the IRS form 990.

Any bookkeeping and financial reporting relies on good recordkeeping. "Keeping the books" can easily be more effort and expense than an audit. A CPA will charge you for the audit depending on the complexity of your year, and also on the type of audit. There are several levels ranging from examining and tracing each transaction, to a perusal that you are following generally recommended practices.

You probably need to do a little more homework and get input from an accountant before committing and spending money on an audit.

Bob Kutella

This is a standard requirement and it should be fairly easy to find an independent CPA firm in your area to do your audit and prepare your 990.

One way, if you're using a program such as Quickbooks or Peachtree Accounting, is to find a CPA that has expertise in using these programs.

Bob H

Stationary Steam,

I am not sure if it is an audit of the same level, that you are looking for, but you might want to talk to the members of your group. For example the group I belong to has 2 members that conduct an annual audit between when the treasurer closes & tallies the year and sending in the 501c3 tax forms (probably the Form 990, I am not sure if there are others). You may have members that have either done CPA type work at a large company, are/were CPAs or have family members that are capable.

Just a thought,

Rich C.

Rich and others,

We have an "audit committee" such as you describe at our church where a group of members review the work of the treasurer. What the grant funders are looking for is probably an outside firm to do this work.

Our Museum has a compilation and review done each year by an outside auditor. Our grant funders are satisfied with this report.

There are two other types of work that an outside firm can do. One is a simple complilation of financial activity and the other is a full audit where the auditor personally examines a sample of your receipts, aid invoices, inventory, etc.

If we were to request a full audit the price for this service would double or triple.

Wesley

What you're talking about here is called an "internal" audit and while it's a good idea, the people issuing the grants *may* require an external one.

One thing that could be done is have these people do a pre-audit review of the books, to make sure everything is in good shape before the external audit is performed.

Bob H

There's a significant amount of confusion and error in the answers your question, so please let me clear them up. (I am a currently licensed CPA).

What is being sought is an INDEPENDENT, EXTERNAL audit. What that means is that you need a CPA firm (can be an single individual) who is CURRENTLY licensed and isn't involved with your organization. Firms that engage in "attest" services must undergo peer review as a way to assure practice quality. Although I am a CPA, I won't do an audit as a sole practitioner because I'm not licensed as a firm. As a practical matter, the profession is in such a state of change now I have no idea how a single individual can keep up with all the stuff coming out, unless they are extremely specialized. (Keep in mind a lot of people that hang out a shingle don't do audits or reviews to avoid peer review and will just do tax and advisory services).

While there are rules that define defnitely impaired independence (one penny of stock in a for profit company is impaired), auditors are required to be independent in fact and appearance, which means if it would look bad, it would be bad. I was once going to be assigned as a staff auditor on a pension audit, but because I had a $4500 interest in the plan, I was reassigned in order to avoid an impairment. (independence applies even if you aren't a lead dog) Independence is the "general rule S" of accounting. Within certain limits, a family relationship to an officer or board member would be a definite independence impairment, as would being related to a CFO or controller or sombody with significant with other significant financial responsibility in a client. The firm will have its own system to assure independence and is responsible for it, so don't worry that you'll have to figure it out, although they may ask questions as part of their procedures.

While unlicensed auditors can (and often do) perform a substantial amount of work, the signatories (partner & manager, if the firm is large enough) must be currently licensed CPA's or face penalties for unlicensed practice of accountancy (which really means auditing, obviously a lot of accountants work everyday at other things without a license)

If you have a CPA in the organization, they can assist with the preparation for the audit and in fact could function as your internal auditor, but can't release a report that provides the magic words "independent accountant's report".

The purpose of an audit committee is similarly not to provide audit services. Their job is to retain an external accountant and be the "ears" of the board. If for example, the auditors find misstatements, or what's now referred to as "significant deficiencies" or even fraud, the audit committee's job is to hear the bad news first and advise the board of communications from the auditor(s).

Audits are the highest level of assurance you can receive from an external auditor, its "reasonable". Reviews provide "limited" assurance, because the procedures employed are less exacting in intensity and scope. Compilations provide NO assurance. The latter two engagements are governed not by GAAS (generally accepted auditing standards) but by SSARS (statements on accounting and review services).

Its true that many donors/grantors will accept a review in liue of an audit for non-profits, however as you get larger, the less likely that it is that a review will be accepted. Most states actually require not-for-profits to have an annual audit once they attain a certain size and the tendency is that the thresholds are being lowered, in part as result of abuse of not-for-profit laws by plain old frauds, terrorists, etc.

I owe somebody else a response first, but if you have additional questions, contact me off-line.

"Superheater" hit the nail on the head. Before "ABC Foundation for Steam Trains" will donate $1.2 million dollars for the restoration of ??? they want to know without a doubt the money will be spent as noted. All the best intentions in the world will not help if you co-mingle or misuse grant monies. Do you not only have procedures in place for the outside audit of said monies but do you have a group/committee/person who sole purpose is watching how the "Project" is spending "ABC's" money? Do you have a solid, double-dipped in gold, flame proof 1 year/3 year/5 year plan? Is your group/association/501c3 supported by the local and do you support the locals in turn?
Grant makers, ie Final Decision persons, are not hatched from a test tube. They are what the Foundation requires, good stewards of monies placed in trust with the foundation. These Stewards talk to each other so know that what you told "ABC Steam Foundation" will be asked for by "DEF" Foundation. After all, you will use the prior grant as basis for further requests.

Sorry to disagree with somebody who opens with a compliment, but an external financial audit is focused only on the company's financials.

A financial audit will do things like look for a "three way match" between purchase order/invoice/receiving reports (assuming the documents all exist) and obtain a confirmation from the bank that shows that you have the 75g's in the bank listed on your "cash in bank" line.

The only way an auditor is going to acting as a cop/efficiency expert/management consultant, is if they are government performance auditors. Such auditors can spend an entire career without ever touching financial statements. However, unless specifically requested by a donor/grantor and there's no distribution restrictions on any permance audit reports-the request will be for an audit of financial statements, conducted by a private CPA (firm).