January 22, 2004 | Read Time: 2 minutes
Q. I have three questions about audits. One, our charity usually has one done annually, but would every other year be sufficient? Two, are there any regulations that require charities to undergo audits? And three, can you cite the reasons why audits are good for nonprofit organizations?
A. In these days of accounting scandals, audits are definitely a hot topic. To answer your last question first, audits provide a number of important benefits or charities, says Andrew Lang, national director of the tax consultant BDO Seidman’s Institute for Nonprofit Excellence, in Washington. “Nonprofits that have audits are deemed by the community to have more rigorous accounting controls — an important perception in today’s distrustful environment,” he says. Audits also provide your board with an independent opinion on the accuracy of the financial information they receive, which helps them to fulfill their fiduciary responsibility, he says. And, he adds, although it may not be pleasant, “management also benefits from having auditors review their processes and procedures to determine whether there are noticeable weaknesses.”
Generally, a charity’s bylaws will require an annual audit, says Mr. Lang. And, starting this year, if your organization spends more than $500,000 in federal funds per year, it will need to undergo an annual financial assessment to fulfill the requirement of the Office of Management and Budget’s A-133 audit. (Learn more about the A-133 audit here.) But if you’re not in either situation, he says, it is certainly possible to have an audit every other year.
However, Mr. Lang says, there are two practical concerns in forgoing an annual evaluation. “First, many funders insist on recipients having an annual audit as a requirement to receive funding,” he points out. Second, you may not save that much money by going to an every-other-year schedule. An auditor will have to review opening and closing balances of the year they’re assessing, and so they will have to spend time reviewing numbers from the previous year anyway. “Having an audit one year and not the next,” he says, “will make those years in which the audit takes place significantly more expensive.”
