Many not-for-profits have just wrapped up their fiscal year end and are trying to close up their books for the year. Are you aware of what your reporting requirements are? Does your organization need an audit of your financial statements to be performed? Below are some reasons an audit could be needed.
- State Law: Many states require audited financial statements if a not-for-profit organization (domestic or foreign) solicits funds in that state. For the State of Illinois, charitable organizations registered in the state are required to attach audited financial statements to their annual Form AG990-IL if gross contributions exceed $300,000, or if the organization used a paid professional fundraiser which raised contributions in excess of $25,000.
- Federal Requirement: A financial statement audit and audit of federal awards is required if an organization expends $500,000 or more in federal awards in a year.
- Donor Request: An audit may be needed even if not required by state laws or federal requirements. Donors, especially corporate, foundation or governmental agencies feel more comfortable when looking at audited statements which reflect specific details on how contributions were used by the organization. Many donors ask for an annual audit report, especially when not-for-profits are applying for grants. Some donors do consider that smaller not-for-profit organizations may not have audited financials and instead will accept funding applications if a copy of the organization’s Form 990 is made available. However, although some donors may accept Form 990 during the application process they may require an annual audit after the funds are provided.
- Bank Debt: An audit may be required by the bank for current or future financing. If your organization has outstanding debt there may be loan covenants which require audited financial statements to be submitted.
- Board Governance: The Board of Directors of the organization may want an audit to be performed due to requirements in the by-laws.
- Fiscal Responsibility: The Board of Directors may require an audit simply to feel more comfortable with the financial results. With increased focus on good governance and fiscal responsibility, audit committees and the Board of Directors of not-for-profit organizations are under greater scrutiny as they attempt to carry out their stated missions. In the current environment where donations and support are declining, an audit shows a donor that the not-for-profit is committed to be fiscally accountable.
If you do not have an audit requirement, you may be able to simply have a review or compilation performed, both of which are less comprehensive and less costly than an audit, but may not always satisfy the users of the reports. Having an audit performed may help your organization better present its financial performance through reporting which will allow the organization to “tell its story” to the readers of the financial statements.
If you have any questions or would like to discuss your organization’s needs, call Marlene Domash, Member, Weltman Bernfield LLC at 847.941.0248.