A common question that comes up for many nonprofits-Should my nonprofit do a review or an audit?
Since I just finished submitting Aspiration's financials to our accountant who will be filing our annual 990 tax return and conducting our annual review, I thought it would be a great time to answer that question.
A financial review is when an accountant asks the organization to submit a series of financial documents. The accountant then reviews those documents and presents the financial reports to the organization in which it is good practice for the Board of Directors to vote on the review presented by the accountant. Review’s generally cost $2-6k or less.
An audit is when an accountant asks the organization to submit a series of financial documents. The accountant then reviews those documents, then comes into the nonprofit for several days to verify the accuracy of those documents and then presents the financial reports to the organization. Like I mention above, it is very good practice for the Board of Directors to vote on the audit presented by the accountant. Audits generally cost $4-10k or more.
Some states have financial requirements for nonprofits to do a review or audit, for example--"nonprofits who have budgets over $2mil must conduct an audit" It is good to check with your accountant for those requirements in your state. I always involve my Board of Directors in the decision as to whether the organization should do a review or an audit. The decision in choosing to do a review or an audit usually has to do a little bit with the nonprofit's budget size, the financial oversight that the organization wants, and funder requirements. Some nonprofits choose to do an audit because they want the additional financial oversight that an audit requires, however other nonprofits are fine with doing an annual review because they have a small budget and their funders are fine with receiving their annual review.
There is a new law that affects nonprofits who have budgets over $2mil which includes their audit requirements. For more information about the Sarbanes-Oxley law check out the Independent Sector’s website: http://www.independentsector.org/issues/accountability/checklist.html