PPC’s Guide to Audits of Nonprofit Organizations: Checklists & Guidance

audit guide for small nonprofit organizations

Nonprofit organizations may require compilations, reviews, audits, or Single Audits. PPC’s Guide to Audits of Nonprofit Organizations includes tailored practice aids to help you perform audits and engagements for your nonprofit clients in accordance with professional standards. The Guide contains report examples and multiple sets of audit programs including a set of initial audit programs, a core set appropriate for any audit engagement, and a set appropriate for audits of many small organizations. It’s important to remember that financial audits are not the only types of audits you may encounter.

  • Non-Federal entities’ inquiries should be addressed to the Federal awarding agency, cognizant agency for indirect costs, cognizant or oversight agency for audit, or pass-through entity as appropriate.
  • (b) Disallow (that is, deny both use of funds and any applicable matching credit for) all or part of the cost of the activity or action not in compliance.
  • (b) A report on internal control over financial reporting and compliance with provisions of laws, regulations, contracts, and award agreements, noncompliance with which could have a material effect on the financial statements.
  • Often an entity will have a fringe rate, overhead rate and G&A rate or just a fringe rate and another single indirect cost rate (overhead/G&A).
  • (b) Depreciation on buildings used for more than one function, and on capital improvements and equipment used in such buildings, must be allocated to the individual functions performed in each building on the basis of usable square feet of space, excluding common areas, such as hallways, stairwells, and restrooms.
  • Exceptions will only be made in particular cases where adequate justification is presented.
  • (7) Standards governing the use of banks and other institutions as depositories of advance payments under Federal awards are as follows.

These local governments are not required to submit their plans for Federal approval unless they are specifically requested to do so by the cognizant agency for indirect costs. Where a local government only receives funds as a subrecipient, the pass-through entity will be responsible for monitoring the subrecipient’s plan. Most governmental units provide certain services, such as motor pools, computer centers, purchasing, accounting, etc., to operating agencies on a centralized basis. Since federally-supported awards are performed within the individual operating agencies, there needs to be a process whereby these central service costs can be identified and assigned to benefitted activities on a reasonable and consistent basis.

Selecting GAAP Principles

A multi-shift basis should be used if it can be shown that this amount of usage would normally be expected for the type of facility involved. (g) Costs of prosecution of claims against the Federal Government, including appeals of final Federal agency decisions, are unallowable. (3) The costs are not otherwise borne directly or indirectly by the Federal Government. (6) The Federal Government must receive an equitable share of any amounts of previously allowed post-retirement benefit costs (including earnings thereon) which revert or inure to the non-Federal entity in the form of a refund, withdrawal, or other credit. (1) For PRHP financed on a pay-as-you-go method, allowable costs will be limited to those representing actual payments to retirees or their beneficiaries.

After direct costs have been determined and assigned directly to Federal awards and other activities as appropriate, indirect costs are those remaining to be allocated to benefitted cost objectives. A cost may not be allocated to a Federal award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been assigned to a Federal award as a direct cost. If a dispute arises in the negotiation of a plan between the cognizant agency for indirect costs and the governmental unit, the dispute must be resolved in accordance with the appeals procedures of the cognizant agency for indirect costs.

Special Considerations for States, Local Governments and Indian Tribes

Generally accepted government auditing standards (GAGAS), also known as the Yellow Book, means generally accepted government auditing standards issued by the Comptroller General of the United States, which are applicable to financial audits. Compliance supplement means an annually updated authoritative source for auditors that serves to identify existing important compliance requirements that the Federal Government expects to be considered as part of an audit. Auditors use it to understand the Federal program’s objectives, procedures, and compliance requirements, as well as audit objectives and suggested audit procedures for determining compliance with the relevant Federal program. The CPS should be tailored to fit the specific policies of each organization.

audit guide for small nonprofit organizations

(5) To the extent available, the non-Federal entity must disburse funds available from program income (including repayments to a revolving fund), rebates, refunds, contract settlements, audit recoveries, and interest earned on such funds before requesting additional cash payments. (d) Take prompt action when instances of noncompliance are identified including noncompliance identified in audit findings. Non-Federal entities are subject to the non-procurement debarment and suspension regulations implementing Executive Orders and 12689, 2 CFR part 180. The regulations in 2 CFR part 180 restrict awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from or ineligible for participation in Federal assistance programs or activities.

Audit Requirements

When the Federal awarding agency authorizes the approaches in paragraphs (e)(2) and (3) of this section, program income in excess of any amounts specified must also be deducted from expenditures. (d) Values for non-Federal entity contributions of services and property must be established in accordance with the cost principles in subpart E of this part. If a Federal awarding agency authorizes the non-Federal entity to donate buildings or land for construction/facilities acquisition projects or long-term use, the value of the donated property for cost sharing or matching must be the lesser of paragraph (d)(1) or (2) of this section. Indirect cost rate proposal means the documentation prepared by a non-Federal entity to substantiate its request for the establishment of an indirect cost rate as described in appendices III through VII and appendix IX to this part. The purpose of the CPS is to establish a clear understanding between the organization and the federal government as to what costs will be charged directly and what costs will be charged indirectly.

  • (4) Department administration expenses, which will be computed as 20 percent of the salaries and expenses of deans and heads of departments.
  • HRSA defers to the auditor and the provider of commercial organizations, and their auditors, to make a determination as to the basis of accounting that will be sufficient to complete a financial related audit in accordance with Government Auditing Standards under 45 CFR § 75 Subpart F.
  • A subrecipient must submit to the pass-through entity, no later than 90 calendar days (or an earlier date as agreed upon by the pass-through entity and subrecipient) after the end date of the period of performance, all financial, performance, and other reports as required by the terms and conditions of the Federal award.
  • For facilities and administrative (indirect (F&A)) rate proposals, educational institutions must use the standard format, shown in section E of this appendix, to submit their indirect (F&A) rate proposal to the cognizant agency for indirect costs.
  • Fixed rates may be negotiated where predetermined rates are not considered appropriate.
  • (b) The institution qualifies for, and elects to use, the simplified method for computing indirect (F&A) cost rates described in Section D.

Federal award date means the date when the Federal award is signed by the authorized official of the Federal awarding agency. (4) See also definitions of Federal financial assistance, grant agreement, and cooperative agreement. (1) The charges may be reported on a cash or accrual basis, as long as the methodology is disclosed and is consistently applied. Contractor means an entity that receives a contract as defined in this section.

Independent Audits (non-IRS Audits)

(5) By the Federal awarding agency or pass-through entity pursuant to termination provisions included in the Federal award. (g) Consider whether the results of the subrecipient’s audits, on-site reviews, or other monitoring indicate conditions that necessitate adjustments to the pass-through entity’s own records. (5) In accordance with its agreement, uses the Federal funds to carry out a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity. (c) The non-Federal entity is exempt from the pre-procurement review in paragraph (b) of this section if the Federal awarding agency or pass-through entity determines that its procurement systems comply with the standards of this part. (b) The non-Federal entity must negotiate profit as a separate element of the price for each contract in which there is no price competition and in all cases where cost analysis is performed. (iv) The non-Federal entity may use competitive proposal procedures for qualifications-based procurement of architectural/engineering (A/E) professional services whereby offeror’s qualifications are evaluated and the most qualified offeror is selected, subject to negotiation of fair and reasonable compensation.

audit guide for small nonprofit organizations

(2) For Federal awards received as a subrecipient, the name of the pass-through entity and identifying number assigned by the pass-through entity must be included. (a) A state, local government, or Indian tribe that is required by constitution or statute, in effect on January 1, 1987, to undergo its audits less frequently law firm bookkeeping than annually, is permitted to undergo its audits pursuant to this part biennially. Federal non-cash assistance, such as free rent, food commodities, donated property, or donated surplus property, must be valued at fair market value at the time of receipt or the assessed value provided by the Federal agency.

If you have questions about tax or correspondence audits, reach out to our nonprofit team. Now that you know the benefits of obtaining an audit, even if you are not required to, let’s focus on the important distinction between independent audits and the IRS audits mentioned earlier. Whether your organization is obligated to obtain an audit or not, there are many positives that will help your nonprofit as it moves forward.

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