Nonprofit Accounting Basics

Audit Committee

Author: 

The primary function of an audit committee is to ensure the organization carries out an independent outside audit. Specific duties include:

  • hiring an auditor (this is not a staff function!)
  • reviewing the audit report with the auditor
  • assuring the board that the financial statements reflect the organization's financial condition
  • requesting an internal audit from time to time
  • verifying all affairs in the organization are conducted ethically

An organization with a complicated financial structure, various revenue streams, and/or a budget of at least $500,000 should consider annual independent audits. Smaller nonprofits that might experience regular audits financially too burdensome, could choose a review or at least have a professional accountant compile the financial statements. Organizations that receive government funding usually do not have a choice: an outside audit is a compulsory requirement for receiving funding. Also, some funders expect their grantees to share their audited financial reports.

 

Additional references:

Audit Guide for Audit Committees of Small Nonprofit Organizations
http://www.vscpa.com/Resources/For_Non_Profits/Audit_Guide.aspx