Federal Law governing nonprofit audits
If a nonprofit organization expends $750,000 or more in federal grants in a fiscal year beginning on or after Dec 26, 2014, the organization is required to conduct a single audit.
Federal grants include money originated directly from federal government or funds came to the nonprofit from a “pass-through entity”, such as a state or local government agency.
The single audit must be completed and submitted to the federal audit clearinghouse within 9 months after the nonprofit’s fiscal year-end.
State Laws governing nonprofit audits
State laws regulating independent audits are different state-by-state. Currently there are 26 states that require nonprofits to conduct an independent audit under certain circumstances. The requirement for the audit is most often triggered by either the total receipts during a fiscal year, or the total expenditure in state grants.
Texas State, for example, requires nonprofits to conduct an independent audit if they spend $750,000 or more in state awards in a fiscal year beginning on or after Dec 26, 2014. This threshold is the same as the federal threshold mentioned above. Followings are general audit guidance by Texas State.
Auditor selection
Use of state auditor: state auditors should be used if they comply fully with the requirements.
Whenever possible, nonprofits should make positive efforts to utilize small businesses, minority-owned firms, and women’s business enterprises during the procurement of audit services.
Financial statements
Nonprofit should prepare financial statements that reflect its financial position, results of operations, and, where appropriate, cash flows for the fiscal year audited.
Nonprofit should also prepare a schedule of expenditures of state awards for the fiscal year audited.
Audit findings follow-up
The nonprofit is responsible for follow-up and corrective action on all audit findings. At the completion of the audit, the nonprofit will prepare a corrective action plan to address each audit finding. If the nonprofit does not agree with the audit findings or believes corrective action is not required, then the corrective action plan should include an explanation and specific reasons.
Report submission
The audit should be completed and the reporting package should be submitted to the state agency no later than 9 months after the nonprofit’s fiscal year-end.
Reporting package includes financial statements, schedule of expenditures of state awards, summary schedule of audit findings, auditor’s report, and corrective action plan.
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