As a nonprofit organization in Illinois, there are many circumstances that can trigger an audit, and so it’s important to be prepared for this essential legal process. If your nonprofit organization is required to obtain an audit of its financial records, it’s essential to be as accurate and thorough as possible.
If your nonprofit organization is required to obtain an audit of its financial records, contact Chicago nonprofit attorney and CPA James C. Provenza. Call us today at (847) 729-3939.
Illinois Nonprofit Audit Requirements
When it comes to getting an audit of your nonprofit by an independent public account, the most common reason involves Illinois state regulatory requirements. According to Statute 225 Ill. Comp. Stat. § 460/4, charitable organizations with annual contributions of over $300,000 must file audited financial statements that were prepared by an independent CPA. If a charitable organization has between $25,000 and $300,000 in donations, then it’ll only have to file an audited financial statement if a professional solicitor engaged in the fundraising.
Audit Requirements for Nonprofits That Receive Federal Money
Nonprofits that expend more than $500,000 or more in federal awards every year must also have a compliance audit conducted. This audit must be in accordance with the Generally Accepted Government Auditing Standards, also known as the Yellow Book, which lays out the framework for conducting high quality audits with competence, integrity, objectivity, and independence. These audits must also be in compliance with OMB Circular A-133.
Understanding the Audit Process
If your nonprofit organization in Illinois is required to have its financial documents audited, it’s important to become as acquainted with the auditing process as possible.
For instance, in many cases, an audit involves an “independent examination” of a nonprofit’s financial records by a licensed certified public accountant. This independent examination focuses on your organization’s financial records, accounts, business transactions, accounting practices, and internal controls. The end result is an authentication of an organization’s accounting books and records.
Generally, an independent audit involves two stages:
- The first stage usually involves a test of the nonprofit’s internal controls. Another term for this first stage is “risk-based auditing,” as the test of the internal controls will determine the amount of test work that’ll be required to verify the accuracy of the financial balances. By testing for a strong set of internal controls, the auditor can better determine the amount of financial testing he/she will need to conduct.
- The second stage involves tests of the financial balances. For this process, the auditors may review supporting information, perform analytical procedures, and confirm specific balances to gain assurance regarding accuracy. When discrepancies arise, the nonprofit may need to adjust journal entries to correct the discrepancies.
Remember, during any stage of the auditing process, the auditor will review your nonprofit’s financial statements and crosscheck them with the accounting principles created by the “Financial Accounting Standards Board.” At the conclusion of the audit, the auditor will often give the nonprofit’s board a professional opinion regarding whether or not the financial statements represent the financial position of the organization without inaccuracies or misrepresentations.
Managing an Audit of Your Illinois Nonprofit
The best way to manage an audit is to stay prepared, virtually all of the time. This means contemporaneously maintaining the necessary documentation for all accounting transactions of the year. Before you get audited, there are some essential preparation tactics that you can employ, including:
- Having documentation ready for auditors
- Referring to a comprehensive engagement letter, also known as a Request for Proposal, which includes:
- A description of auditing services
- The responsibility of nonprofit staff
- Start date and completion of the audit
- Any fees for audit work
Following the audit, and before the auditor finishes the final report, the nonprofit board, relevant staff, and the auditor should get together to review the auditor’s findings and reviewing any recommendations, such as material internal control issues, operating inefficiencies, and more.
Contact James C. Provenza & Associates Today
Even if the Illinois state or the federal government doesn’t require your nonprofit to get an audit of its financial statements, there are several reasons why an audit may be useful. One reason is financial transparency, while another reason is eligibility for funding. No matter your situation, if you are getting an audit or you need to prepare for an audit, make sure to call Chicago nonprofit attorney and CPA James C. Provenza. Call our Illinois nonprofit firm today at (847) 729-3939.