Audit fees are generally expensive for any organization. Moreover, many small organizations lack a full understanding of how the audit process differs from the preparation process. If your nonprofit organization has decided to undergo an independent audit, several factors will determine the audit's cost. By understanding these factors, you can negotiate audit fees and plan for their costs.
How much does a nonprofit audit cost?
Independent audits cost differently depending on how large the organization is and where it is located. The cost of an independent audit varies by region and nonprofit size. Smaller nonprofits typically pay in the neighborhood $10,000. Larger nonprofits in metropolitan areas can expect fees exceeding $20,000. Independent audits are also time-consuming, and most often require staff and board members to participate.
Costs are generally determined by the amount of time an independent auditor or audit firm spends conducting the audit. If the organization's budget is large and its finances complicated, the audit may take longer and cost more. Various accounting firms charge different rates, particularly from region to region across the country, depending on whether the auditor is a large company or an independent consultant.
A change to the federal tax code or FASB standards can also increase costs since auditors may have to spend more time than usual working through those changes in the first year following the implementation of new standards.
When to Conduct Your Nonprofit Financial Audit
You should plan your nonprofit audit based on the requirements of the organization to which you're submitting the results. This is where you should look first to determine when it should be conducted.
Nonprofit professionals can easily understand a clear deadline by which an audit must be completed. The time required to prepare, conduct, and incorporate the recommendations that come out of the audit process is less understood. To meet your deadlines, you may be under pressure to begin the audit process by a certain date.
Making sure your audit is complete before you file your Form 990 is an industry best practice. Form 990s must include the adjustments made by nonprofits as a result of the audit.
How to Evaluate Your Next Nonprofit Audit Firm
Even though you have a tight budget, you can make sure that your audit firm is qualified to handle your nonprofit's audit. Here are some tips on how:
- Consult references - Listen carefully to what the firm's clients have to say about their experiences. Is it easy working with the auditors? Are they experienced in nonprofit accounting? What new things have they learned working with the auditors?
- Ask for recommendations from trusted advisors - Many bankers, for example, review financial statements from multiple audit firms and know how each compares to the others in terms of quality and nonprofit expertise.
- Get a free consultation with a potential new audit firm - Is there good chemistry between you? Did you learn anything new from talking with them?
- Try to look past the price - Consider asking yourself, for instance, which company would you most like to hire if the price wasn't an issue.
If you like a particular audit firm, but their price is too high, talk to them about it. Prices may be able to be negotiated. Maybe they want to work with you just as much as you do. There's no harm in asking.
A Cheap Nonprofit Audit Could End Up Costing More In the Long Run
Most nonprofits spend most of their resources on mission-related activities due to their limited budgets. On the surface, a cheap audit seems like a good way to save money. However, you should choose your audit firm based on more than just cost.
Financial accounting, reporting, and advice shouldn't be underestimated. If you invest in a high-quality CPA firm with nonprofit experience, you might end up paying much less in the long run. In investing in your organization's financial health, you are investing in its future.
What to Be Aware of with Cheap Nonprofit Audit Firm?
Most likely, your audit firm will be inefficient if they don't regularly conduct nonprofit audits. The lack of nonprofit audits means they don't have streamlined processes in place. You and your staff may be interrupted a great deal by this.
Consider whether the audit firm understands the nuances of nonprofit accounting and auditing when evaluating a new firm. An auditor should explain nonprofit-specific tax requirements, proper reporting, and transparency and controls.
Accounting procedures specific to nonprofit organizations are required to provide accurate records of how money is received and spent. Can your audit firm help you with those matters?
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