Are You Prepared for Nonprofit Tax Deadlines?  

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Taxes are rarely anyone’s idea of fun, but meeting nonprofit tax deadlines is critical to keeping even the most successful and impactful charities running. 

Unfortunately, they can often sneak up on busy nonprofit leaders, leading to a last-minute scramble to file – or worse. 

So, what should organizations keep in mind about tax deadlines? Read on as we break down the basics.

What Nonprofits Need to Know About Tax Deadlines

While it’s common knowledge that nonprofits aren’t responsible for paying taxes on the money they bring in, that doesn’t mean they’re off the hook from filing taxes altogether. In fact, nonprofits and charities must file annually to provide the IRS with updated information on their activities. 

However, unlike individuals, nonprofits can have varying deadlines for when their returns need to be filed.

Form 990

Form 990 and its variations are the most common federal form required of nonprofits. It provides information on the organization’s:

  • Purpose
  • Structure
  • Revenue
  • Spending
  • Current balance sheet

It’s also available in an “EZ” version, which is a simpler version for nonprofits with less than $200,000 in gross receipts per year and less than half a million in assets, as well as an even shorter 990-N, for organizations with under $50,000 in gross annual receipts. 

Form 990 is generally due on the 15th day of the 5th month after an organization’s fiscal year ends. For example, those with a fiscal year ending on December 31st would have a due date of May 15th.

Form 941/944

Form 941 is a quarterly update to the federal government on the nonprofit’s employment situation. It covers things like the following:

  • Number of employees
  • Wages paid
  • Federal taxes withheld

The deadline is the final day of the month following the end of the quarter. Form 944 provides similar information but is filed annually by January 31st of the following year instead of quarterly and only applies to smaller organizations with employment tax liability under $1,000.

W-2/W-3 and Form 1099

Nonprofits with employees (W-2) or who use contractors (form 1099) will need to submit the proper federal tax documents to these individuals and the federal government. 

The deadline for both parties is typically January 31st of the year after the work occurred.

State Tax Forms

In addition to federal filing requirements, states also have various forms to be filed and deadlines that need to be met. This can vary widely, so consulting with a local tax professional or state tax officials is the best option for ensuring organizations are fully aware of their additional responsibilities.

Are You Aware of the Consequences of Not Filing Taxes?

The consequences of not filing can be serious and varied. At the most basic level, failing to file on time or completely can result in financial penalties from the IRS. Leaders and board members can even face legal trouble for not filing.

Meanwhile, word of tax trouble can scare off donors, who risk losing the tax-deductible status of their donations if the organization loses nonprofit status.

What is Auto-Revocation?

Auto-revocation is a term no nonprofit wants to encounter. It refers to one of the most significant punishments possible for an organization: removing its federal tax-exempt status. 

As its name suggests, this happens to U.S. nonprofits automatically after failing to submit tax returns for a specific period, currently three years. Going forward, the organization will be required to pay taxes like any other for-profit business and may be responsible for back taxes and penalties for the years it failed to file. 

This is a significant financial blow to many (now-former) nonprofits, which is why it only occurs after several years of missed filings. The goal is only to penalize organizations that willfully avoid filing or are extremely negligent in compliance.

Already Had Auto-Revocation? Here’s How to Handle It

Receiving a notice of auto-revocation can be scary for any nonprofit leader. Fortunately, auto-revocation isn’t a permanent punishment for every organization. 

The first step to fixing the problem is re-applying for tax-exempt status with the IRS. You’ll typically need to pay application fees again and explain the circumstances that led to your auto-revocation. Often, organizations will also have to submit returns for previous years. 

The IRS will then consider your case and potentially restore your status. However, this can take several weeks or months, though tax officials can apply your reinstatement retroactively to cover any gaps. 

The final step is preventing this serious issue from happening again by setting up robust, regularly reviewed systems to ensure tax compliance and other legal requirements are fulfilled.

Don’t Miss Any Nonprofit Tax Deadlines

By now, it should be obvious that meeting nonprofit tax deadlines is among the most vital and essential duties of leaders, who need to protect their tax-exempt status at all costs. 

While taxes can be complicated and overwhelming, nonprofits, fortunately, don’t need to manage it all alone. 

The Charity CFO offers tax services and guidance for organizations from our experienced financial professionals with an extensive background in the nonprofit world. Contact us today to learn more and ensure your next tax deadline is stress-free.

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How to Comply with Accounting Standards for Nonprofits

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Accounting standards for nonprofits are probably not the first thing you think about, but are crucial for your organization to succeed.

Nonprofit organizations distinguish themselves from for-profit entities through their purpose and mission. Their mission is usually anchored on a cause or social purpose, not on the generation of profits.

Because of their unique structure and operational model, nonprofits must comply with various accounting standards that are, in many ways, different from for-profit organizations.

In the United States, these Generally Accepted Accounting Principles (or GAAP) are set by the Financial Accounting Standards Board (FASB). NPOs must adhere to these accounting policies to remain compliant with the law and maintain their tax-exempt status.

The consequences of not adhering to accounting standards can be severe, leading to:

  • Inaccurate financial reporting
  • Hefty fines and penalties
  • Reputation damage
  • Loss of confidence from donors and stakeholders
  • Funds being frozen or withheld
  • Highest risk of failure and even closure
  • IRS audits
  • And in some cases, the revocation of the organization’s tax-exempt status

Here’s what you need to do to remain compliant:

Understand the Basics of Nonprofit Accounting

Nonprofit accounting is a unique process of planning, recording, and reporting the financial activities of a nonprofit organization. The goal is to create an accurate and comprehensive record of all transactions that can be used for both internal and external reporting, including audits and tax returns.

In the FASB 117, the IRS establishes the core accounting standards for nonprofits, which include:

  • Unrestricted, temporarily restricted, and permanently restricted funds
  • Fund accounting
  • Cash-basis and accrual-basis accounting
  • Presentation of financial statements such as statements of functional expenses, cash flow statements & statements of cash flows
  • Accounting for donated assets

Ideally, these standards should help your nonprofit maintain transparency and accountability with donors, grant funders, and the public. They also help the nonprofit to allocate their resources properly, keep them organized and only spend on expenses that are essential to the organization’s mission.

This is fundamentally different from for-profit accounting, which is geared towards generating profits and returns for its owners (stockholders). Another difference is in fund accounting. Whereby nonprofits must track their funds separately according to unrestricted, temporarily restricted, and permanently restricted categories.

Section 501 (c)(3) organizations must also adhere to specific tax-filing requirements that are uniquely different from for-profit entities, as outlined in the Internal Revenue Code.

Some of these include:

  • File Form 1023 with the IRS to apply for recognition of the organization’s 501 (c)(3) tax-exempt status after incorporation by the state
  • File form 990 (990-N for nonprofits with less than $50,000 in annual revenue and form 990-EZ for those with between $50,000 and $200,000) that discloses your revenue, expenses, and changes to net assets
  • File Form 8868 to request an extension for filing form 990
  • Pay federal tax Unrelated Business Taxable Income (UBTI) that’s more than $1,000

Identify Relevant Accounting Standards 

The truth is, you can’t truly comply with accounting standards without first identifying which ones are applicable to your organization.

First, nonprofits must follow GAAP, the Generally Accepted Accounting Principles. GAAP’s main objective is to ensure that all financial information is reported accurately, consistently, and transparently. This includes financial statements such as:

  • Income statements
  • Balance sheets
  • Statements of cash flows
  • Statements of functional expenses.

In addition to GAAP, nonprofits must also comply with FASB 117, the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 117 (FASB 117). FASB aims to develop and issue accounting standards through an inclusive and transparent process intended to promote useful information and decision-making by the NPO board, donors, grant funders, and other stakeholders.

There are ongoing efforts to establish International Financial Reporting Standards (IFRS) for nonprofits, which, if successful, could result in greater consistency and comparability of financial information across countries.

The Chartered Institute of Public Finance and Accountancy (CIPFA), together with Humentum, are working to develop these standards under a project titled  “International Financial Reporting for Nonprofit Organizations (IFR4NPO)” and has already released an Exposure Draft to establish a framework for their use.

Implement Internal Controls 

To ensure compliance with accounting standards, you must have proper internal controls in place. Internal controls are a set of written policies, processes, procedures, and systems of authorization, reconciliation, documentation, security, and separation of duties.

These financial practices:

  • Promote accountability
  • Ensure the integrity of financial and accounting information
  • Help improve operational efficiency by improving the accuracy and timeliness of financial reporting.
  • Help protect against fraud, embezzlement, and mismanagement of assets and resources.

Internal controls also provide reasonable assurance that things won’t go sideways and mitigates human error or malicious activities. For example, having one person responsible for recording expenditures and another approving the payments ensures that someone continually monitors all financial transactions.

Other common nonprofit internal controls include:

  • Establishing financial policies and procedures
  • Implementing an audit process
  • Creating a risk assessment process
  • Setting up a system for tracking expenses.
  • Generating and storing critical supporting documentation
  • Segregation of duties (SOD)
  • Access rights and roles to critical financial applications
  • Multilevel review of financial statements and other reports
  • Monthly bank and credit card reconciliations
  • Periodic review of vendors receiving fees/checks from the nonprofit
  • Background checks for employees and board members

Monitor Compliance 

Compliance monitoring is a continuous process of tracking and evaluating data to ensure that your nonprofit complies with accounting standards. This can be achieved by:

  • Keeping up with new regulatory developments
  • Regularly reviewing financial statements
  • Conducting internal audits
  • Setting up a process for monitoring compliance
  • Evaluating the effectiveness of internal controls, financial policies, and procedures
  • Regularly assessing risks and making necessary changes to mitigate them.
  • Creating procedures for taking corrective action when necessary.

Depending on the organization’s size, you can have a single person (such as a CFO) or an audit committee to monitor compliance.

Work with Compliance Experts

Complying with accounting standards is critical to ensure your nonprofit’s credibility, sustainability, and stability. But this can be hard, especially if you don’t have requisite accounting experience.

To ensure that your organization is properly complying with accounting standards, it’s important to work with experienced compliance experts, such as The Charity CFO.

Our experts give you an independent, third eye visibility, and objective review of your financial practices to ensure you remain compliant. Our qualified compliance experts can advise you on best practices and provide support to ensure your nonprofit organization follows industry-specific accounting.

Contact us today to learn more about our services and how we can help your nonprofit organization stay compliant for years to come. 

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Understanding the Job of a Nonprofit Operations Manager

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There are more than 1.54 million nonprofits globally. To ensure that a nonprofit runs efficiently, several people work behind the scenes to make things much easier, and one of those people is the operations manager.

The operations manager might be the secret weapon of the most successful nonprofits we know. By taking charge of getting things done, an operations manager helps executive directors focus their energy on the strategic big-picture that will move their mission forward.

If you’re looking to enter the world of nonprofit organizations with a background in operations management, you might be wondering how your skills can help you. Or, if you’re a nonprofit founder or an executive director, you might be wondering how an operations manager can help make your organization ruthlessly efficient and highly effective.

Read on now to find out what the job description of a nonprofit operations manager might look like.

What does an operations manager do?

A nonprofit operations manager, or director of operations for a nonprofit, is responsible for the day-to-day operations of the organization. 

They oversee the administrative staff and make sure that the office runs smoothly. They also develop and implement operational procedures and systems and manage budgets and financial reports. In short, they ensure that the nonprofit runs like a well-oiled machine!

Now, if that sounds like they do a bit of everything, it’s because that’s true!

An operations manager, by definition, is a manager. They don’t necessarily need to be an expert at any one thing. Still, they need to be able to be proficient enough at many things to manage a highly productive team to get results for their organization.

Here’s how Krysta Grangeno described her day-to-day tasks in operations for a nonprofit organization:

Who reports to the operations manager?
And who do they report to?

It depends on the organization, but generally, any department is responsible for the day-to-day operations of the entity. That may include

  • Finance Department
  • Fundraising Department
  • Program directors
  • Human Resources
  • Information Technology
  • And more!

You can see that, depending on the size and structure of your organization, the ops manager will have to oversee a large number of departments.

In turn, your operations manager will either report to the Director of Operations, the Chief Operating Officer (COO), or directly to the CEO or Executive Director. They may also have some direct interaction with the Board of Directors, although the board isn’t technically their supervisor.

operations-manager-nonprofit-roles

What are the job responsibilities of a nonprofit operations manager?

As mentioned above, their primary role is to supervise and organize the efforts of the departments under their responsibility. Here’s a breakdown of what duties a nonprofit operations manager will be expected to handle:

Ensure the Office Runs Smoothly

The administrative staff is responsible for keeping the office organized and running smoothly on a day-to-day basis. The operations manager will make sure that they have everything they need to do their job effectively and that they are meeting all deadlines.

An operations manager must be exceptionally well organized, as they’ll be responsible for creating systems and processes that ensure every department is meeting its expectations. Often, they’ll also need to be aware of all legal or reporting requirements that the organization may have in executing their programs.

nonprofit-operations-manager-budgeting

Implement Budgets and Oversee Financial Strategy

The operations manager will be responsible for spearheading the budgeting process for the organization and ensuring that the accounting department delivers timely and accurate financial statements for the board of directors or other stakeholders. You’ll also need to be intimately familiar with these statements as well and review them proactively to identify potential issues before they become problems.

As the operations manager, part of your role is to ensure that the financial department runs effectively. This includes ensuring that checks and balances are in place and that employees in the financial department are adequately trained to do their jobs.

The operations manager must also be acutely in-tune with the organization’s budget. Because their role is so wide-reaching, they need to be aware of how shortfalls in one area (like fundraising) may impact the ability to execute in others (like executing programs or meeting payroll).

That doesn’t mean that the operations manager needs to be an accountant. Generally, they’ll oversee the accounting team or work as a liaison with an outsourced accounting firm. But ultimately, they are responsible for ensuring that the accounting work is done correctly and on time.

Supervise Human Resources 

Ideally, the operations manager’s role in human resources is limited to supervision, but that’s not always the case. In some smaller nonprofits, HR may get put completely onto the ops manager’s plate, but we’d recommend against it.

Human resources is a specialized field that requires experience and specific knowledge. You need to comply with employment law, collect the correct information, withhold taxes appropriately, and onboard and train new employees.

A knowledgeable HR professional should establish the policies and procedures for the human resources department, but many nonprofits can’t afford a full-time HR coordinator. That’s why many nonprofits choose to outsource their HR to external firms as well.

Even if you’re working with an external firm, the operations manager will probably need to be involved in many day-to-day items related to HR—like searching for employees to hire, interviewing, training, counseling, and terminating employees.

nonprofit-operations-manager-technology

Manage Technology Integration 

Technology is a massive part of the work that nonprofits do. Almost every person in your organization depends on technology. And the networks and systems that keep those people aligned take organization, security, and maintenance.

Depending on your mission, you may even be dealing with highly sensitive personal information that you have a legal responsibility to protect, even in digital form. As the operations manager, you’ve got to make sure the appropriate technology systems and controls are implemented throughout the business.

Not utilizing the proper systems could mean the loss of crucial data needed in the future. Or it could mean a crumbling IT infrastructure that can’t support the business model being implemented.

Nonprofits often don’t need, or can’t afford, an internal IT department. And relying on someone’s husband or nephew to fix problems isn’t an acceptable solution. Instead, many organizations outsource their IT department to a service provider. In this case, it’s the operations manager’s job to liaison with the IT provider to ensure the office gets the support it requires.

Ensure Compliance and Organization

Records need to be kept in order within any business. There are several reasons for this, but compliance is an important one for many nonprofits.

Your organization needs to comply with accounting regulations, legal restrictions, employment rules, and other industry-specific regulations. And the operations manager is ultimately responsible for ensuring that the company is prepared to prove its compliance when audited.

Not only does record organization help when something needs to be located, but it also speeds up business efficiency. Instead of wasting time hunting for something, it will be easy to access the record database. All you’ve got to do is type in some information and locate the data needed.

How to evaluate performance and further development

Whether you’re building the leadership team to include an operations roles, or you’re currently in an operational leadership role — it’s important to regularly evaluate performance as well as work on developing to further improve your work.

If you’re evaluating your ideal candidate, after they’ve been in the position for a certain period (a year, for example), it’s important to compare their achievements to the job description. For self-evaluations, read resources (like this one) to find usable knowledge to help improve your performance. 

Key areas to concentrate your efforts include:

  • Purposeful communication: In operations, too much communication is nearly as problematic as not enough. What you say, how you say it, must be as useful as possible. That’s where developing purposeful communication tactics come in handy.
  • Organizational processes: As someone who ensures compliance and handles intricate areas of a nonprofit, the ability to develop processes takes precedence over nearly every other aspect of your role.
  • Continuing certifications: There are a number of nonprofit certificate programs available for leadership teams. Those instructing the programs often have robust experience in the sector. Taking these programs helps you find the additional knowledge to improve your performance.

A Note on Outsourcing Professional Services:

We’ve mentioned outsourcing a few times here, related explicitly to bookkeeping/accounting, human resources, and information technology. That’s because this is an emerging trend we see gaining steam in the industry.

Traditionally, many nonprofits had a scrappy, do-it-all mentality when it came to these areas. So, an operations manager or financial director frequently ended up having responsibility for everything— from making bank deposits and firing employees to troubleshooting network issues.

But this approach causes more problems than it solves. Having trained professionals handling complex tasks that are outside their area of expertise is hugely inefficient. And it’s just asking for mistakes.

Yet most organizations can’t afford a full-time accountant, HR coordinator, and IT professional. And that’s where the operations manager comes in.

When organizations outsource these 3 functions and have the operations manager work directly with each team, they can get the full professional support of each team without paying a full-time salary. Often, these teams are more talented and efficient than an internal team member would be.

We believe this is the operational business model of the future for successful mid-sized nonprofits in the $1M to $15M/year range. If you’d like to talk to us about outsourcing your bookkeeping and accounting to The Charity CFO, send us a message to set up a free consultation.

What Qualities Make a Good Operations Manager?

Let’s turn to Krysta again, to offer a first-hand perspective on what skills an operations manager needs:

What A Nonprofit Operations Manager Does: A Recap

A nonprofit operations manager has many responsibilities, but their primary role is to coordinate all the various departments to ensure that business runs smoothly.

The operations manager will oversee the finance department, human resources, information technology, programs, fundraising, and more. And they must grasp how each department impacts the other to ensure that the entire organization runs harmoniously.

By doing their job well and assuming responsibility, they free up each department to focus on what they do best, rather than overlapping tasks or getting tied up in work that’s unrelated to their department. They also help free up the directors to focus on strategy rather than the day-to-day minutiae of each department.

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Nonprofit Audit Requirements: Do You Need An Audit?

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Are you clear on the nonprofit audit requirements for your organization?

Contrary to what many people envision, a nonprofit audit doesn’t usually start with a letter from the IRS. Instead, an independent nonprofit audit is something you choose to build trust in your nonprofit organization.

In fact, the IRS doesn’t issue requirements for nonprofits to be audited, but other federal and state agencies do in some circumstances.

Plus, many grantmakers, foundations, lenders, and donors will require an independent audit before giving money to your nonprofit organization.  

An audit can be a critical step for a growing nonprofit that needs to raise increasing amounts of funds. But it’s expensive. And time-consuming. So it’s not always a wise investment for some smaller nonprofits. 

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In this article, we’ll take a look at what an independent financial audit is and when your nonprofit might need one. And we’ll also look at your less-expensive alternatives for establishing financial credibility with your stakeholders.

What is a nonprofit financial audit? 

what_is_nonprofit_audit

A nonprofit financial audit is an independent examination of the accuracy of your accounting records, financial statements, and internal controls.

It confirms your compliance with federal grant management standards. And many federal and state agencies require audits, depending your organization’s fundraising, size, and spending. 

(For example, 26 states require an audit before a nonprofit can earn charitable registration — necessary for in-state fundraising. And, the Office of Management and Budget requires an audit when a nonprofit spends more than $750,000 in federal funds in a year through the end of 2024. Starting in 2025, the new threshold will increase to $1,000,000.)

When you pass the audit, you’ll receive a clean bill of health from your auditor and a professional opinion stating the accuracy and validity of your accounting records. It assures outside observers that “the organization’s financial records meet generally accepted accounting principles.”

Bottom line? An audit shows your organization is trustworthy, compliant, and well-managed. 

And that inspires trust and confidence among potential funders, banks, and other potential partners.

What a nonprofit financial audit is NOT: 

irs_audit

First, this isn’t the same as an IRS audit–it’s not an “I’m being audited!” situation. 

Instead, it is a decision to take proactive ownership of your organization’s financial health, transparency, and validity by hiring a professional to examine your books. 

It’s also not a compilation of your financial statements, your financial strategy, or a report of financial viability. Those are up to you and your in-house or outsourced accounting team. 

What are the nonprofit audit requirements? And is your organization required to have one?

There are no hard-and-fast rules for when you need to conduct an audit. But here are some of the common external triggers that may require you to conduct an independent audit: 

✔️ When you spend over $500,000 per year.
Nonprofits that spend $500,000 a year are typically required to do an annual audit (but this varies by state, so check your state’s requirements)

✔️ When it is in your bylaws.
Check your company’s founding documents. The founders may have stated the organization would complete annual audits.

✔️ When you receive federal funding.
Organizations that receive more than $750,000 in federal funding may be required to complete an audit.

✔️ When you want to get serious about grant funding.
Many grants require an audit (not a review or compilation) because it provides an opinion of assurance.

✔️ When you want to apply for a loan.
Many banks will ask for audited financials as a prerequisite for lending you money. 

Some internal changes may also trigger an audit: 

  • Changes in services, programs, or leadership 
  • Acquiring, merging with, or losing a partner organization  
  • Shifting debt, leases, or contracts 

The benefits of an independent financial audit for nonprofits:

No other report, review, or statement inspires more confidence than an audit. Which makes it easier for you to attract larger donations, apply for grant funds, and access lending facilities.

Because it’s a universal indicator that your organization takes fiscal responsibility seriously, it’s impact goes beyond fundraising. An audit is also a symbol to the media, volunteers, watchdog groups, and the community you serve. 

Internally, it provides valuable oversight for your bookkeeper or accounting team. And it gives the board and leadership the peace of mind that your books are accurate and reliable. 

All in all, a financial audit helps you hold your organization accountable to your mission, build trust with the outside world, and access money to pursue your goals.

Less expensive alternatives to a nonprofit audit: 

nonprofit_audit_alternatives

Because a nonprofit audit can easily cost $10,000+, not every nonprofit can afford one. 

If you need to build confidence but aren’t ready to invest in an audit, you have two main alternatives: a financial review and a financial compilation.

We’ll look at the differences between your three options here. But the primary difference between a financial review, a financial compilation, and an audit is the level of “assurance” they provide.

What is assurance? 

Assurance is an opinion given by a CPA on the accuracy of an organization’s financial statements. It shows whether or not your accounting records are accurate per generally accepted accounting principles (GAAP), in the auditor’s professional judgment.

An audit provides reasonable assurance, a review offers limited assurance (but not a professional opinion), and a compilation offers zero assurance. 

Nonprofit Audit Alternative #1: Financial Review 

In a Financial Review, an independent auditor reviews your financial statements to determine if they’re consistent with generally accepted accounting principles (GAAP). 

It offers limited assurance that no significant modifications need to be made. While it does evaluate the accuracy of financial records, no professional opinion is given on that accuracy. A financial review typically costs 40-60% less than an audit. 

Despite the lower level of assurance, a financial review may be enough for some grantmakers to approve your organization. Even if a grant asks for audited financials, sometimes that isn’t a deal-breaker if you have a financial review and meet their other criteria.

But without at least a financial review, you’re probably out of luck when it comes to most grants. 

Nonprofit Audit Alternative #2: Financial Compilation 

A compilation simply organizes your financial records for a specific period in a GAAP-acceptable format without evaluating the accuracy of those records.

It’s a cost-effective option for organizations that need a GAAP report. But it offers zero  assurance as to the accuracy of your books. 

A compilation can help your nonprofit identify obvious errors by getting their books into an organized format. It adds primary value and serves owners, board members, creditors, and financial institutions. A compilation is your least expensive and time-consuming option. 

Not sure if you meet the requirements for a nonprofit audit? We can help you figure that out. 

The Charity CFO doesn’t conduct nonprofit audits. But we have 5 former nonprofit auditors on our team, so we know exactly how to prepare your organization to pass your audit the first time.

Even better, with our nonprofit bookkeeping and accounting services, we’ll ensure your books are always audit-ready. Plus, give you timely financial reports and expert advice that help you carry out your mission.

We’ll help clean up your books and implement state-of-the-art systems to save you time and bring your accounting department into the 21st century.

We’re honored that over 120 nonprofits trust us with their bookkeeping and accounting. And we’d be excited to show you how we can help your organization meet your goals.

 

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The Different Types of Audit Services and What They Mean For Your Nonprofit

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Are audit services on your mind as a nonprofit organization leader?

Do you run a non-profit and worry about your fiscal fitness? Are your productivity and scalability as efficient as it could be? If you’re concerned about these things for your organization, then you should consider an audit.

As a non-profit, you owe it to your donors to stay as lean and as efficient as possible. And in order to maintain your NPO status, you need to keep good record books. So enlisting outside audit services can be just what you need to be successful.

And don’t worry if the mention of an audit sent a shudder down your spine. We get it, nobody likes the idea of getting audited, but outside of the IRS, an audit can be a valuable tool to assess your current situation and look at the areas that can be improved.

If you’re concerned about how to fully utilize an audit, keep reading. We’ve got you covered on the different types of audit services as well as how they can benefit you and your organization.

Four Different Types of Audit Services

Nobody likes the idea of an audit. However, when it comes to maintaining the financial health of your nonprofit business, audits are necessary. An audit can take less time if you can keep your financial paperwork organized and thoroughly documented.

There are several different types of audits that are done by different people and will give you different outcomes based on your goals. Some audits are done internally while others are external and require an outside point of view.

When many people think of audits they think of accountants scrutinizing your finances. But operational audits are also just as valuable to your organization.

1. Operational

An operational audit will look objectively at the systems and functions of your business. The audit will assess your business’ systems and productivity as well as your available resources. They will then make their recommendations for how these areas can be improved and what additional resources will be necessary to make the changes needed.

Operational audits can look at your systems and processes as well as your various departments; these can include IT, HR, and staffing. Additionally, if you find your organization continually missing your goals and objectives, then an operational audit can shine a light on this. You can learn why these goals weren’t met and what can be changed to start meeting your goals and objectives in the future.

2. Financials

A financial audit will evaluate your current financial situation for your business or nonprofit organizations. After their complete assessment, they will give their recommendations for how you can improve the fiscal health of your charity.

They will look at your accounting records as well as your financial reporting of accounts receivable and payable. So, it is vital to keep good records so you can get an accurate assessment of your financial situation within your nonprofit.

If you want your nonprofit to help as many people as possible, you must be fiscally responsible year after year. If you find your organization continually behind with your accounting then the help of a CPA can benefit your company.

A professional bookkeeper will help you keep your records so that you never again dread another audit. Audits are helpful and beneficial tools for your company. And having good records can make them smooth and seamless which will allow you to learn from them rather than stressing out about getting them the right records for their audit.

3. Internal

An internal audit is usually done by and for the management of your company. This form of assessment gives light to how your company can make improvements and grow in the company years.

Regular internal audits are important to shine lights on possible areas of growth within your company. It doesn’t do your business any good to continue to do things as they’ve always been done when there is a better way of doing it.

In order to truly grow your company and help more people with your non-profit, you need to continually be open to new ways of doing things.

4. External

An external audit is done by a neutral third-party person or group looking at your business or nonprofit from an outside point of view. These audits are just as important as internal audits and will provide your company with a much-needed alternate viewpoint.

Additionally, by conducting an external audit you open your business up to learning about possibly blind spots that you hadn’t noticed before. This external point of view is vital to growing a healthy business so don’t shy away from it. It can be difficult to ask the opinion of someone outside of your organization, but it is imperative to healthy growth.

By bringing in an external CPA to look at your records regularly you can ensure that your charity will be able to help as many people as possible. While it can be difficult to bring in an outside group of people to dive into your finances, this is a vital step to providing valuable insight and reassurances that you’re operating a successful business.

Keeping good records in accounting software is vital to quick and easy audits. Additionally, having a bookkeeper can improve your audit experience. By having a professional help you keep good records in an organized manner can help you to have a better audit.

Bottom Line: Keep Your Business Financially Healthy

As you can see an audit doesn’t have to be scary. In fact, it can be a healthy process to learn where your non-profit can improve over time.

And enlisting the help of external audit services can be a great way to take an objective look at your non-profit. You’ve put your whole heart and soul into helping those who can’t help themselves. Don’t risk everything by not keeping your organization running efficiently and financially responsibly.

So, if you think that an audit would be a good experience for your non-profit, then find a CPA you can trust to come and take an objective look at your company today. With the help of an experienced professional, you can ensure that your non-profit will be around for years to come to help many more people.

So, if you’re looking for help on anything from filling out your Form 990 to updating your bookkeeping, then let’s chat. We offer affordable services and can help you set up your non-profit for success today.