The IRS does not require nonprofits to file annual independent audits, but many states do including Wisconsin. In Wisconsin, any charitable organization with contributions surpassing $500,000 must file audited financial statements prepared by a certified public accountant. For any charitable organization receiving less than $500,000 and more than $200,000, a CPA needs to perform a review of the financial statements that then must be filed with the Wisconsin Department of Revenue. Even if your organization is excluded from the audit or review requirement, you may still wish to have an independent audit performed.
First and foremost, nonprofit transparency is essential in establishing continued support from past and for potential donors. Commitment to financial transparency offers donors the chance to truly see where their money is going and confirms that donations are used for their intended purpose. Donor intent, specifically for restricted donations, must be followed when gifts are given for certain purposes.
Most government, public or private foundations require independently audited financial statements when applying for funding, regardless of state law. Having audited financial statements available also helps members of your board of directors feel more comfortable soliciting donations or inquiring about grants because they can depend on having accurate financial information on hand to support their ask.
Is an Independent Audit Financially Feasible?
Naturally, cost may be prohibitive when considering an audit of your nonprofit. Depending on the amount of contributions received, a $5,000 audit might not be a great idea if your only funding is a $10,000 grant. Nonprofits with donations above $1 million can expect an average audit cost of $15,000, and that does not include the internal staff time spent preparing for the audit. An alternative option to a full audit is a “review” or “compilation”. A review offers assurances that financial statements are free of misrepresentations but doesn’t view the financial stability of an organization as a whole, and may meet the need for financial transparency without the price tag of an audit.
The staff at Numbers for Nonprofits does not conduct independent audits ourselves, but we do help our clients prepare for them. The process of gathering all statements and information in preparation of an audit can be time consuming, which is why we offer audit preparation as part of our high-level nonprofit client support services.