Defining a Nonprofit Organization

While nonprofits have a wide range of objectives, their general charter is to accumulate and distribute funds to address specific social objectives and to improve society in some notable way.  Government approval is required to be designated a nonprofit and thereby enjoy tax benefits that profit-seeking organizations do not.  In return, the nonprofit must abide by regulations that disallow the use assets for non-related purposes. To that end, nonprofit responsibilities include the creation of a board of governance to oversee and maintain compliance.

Audit Committee Responsibilities

Though nonprofit organizations do not have the same responsibility to shareholders as profit-driven corporations, these certainly have an obligation to maintain accurate and detailed financial reporting. Supported by funds from donors and foundations, plus the government from a tax-exempt perspective, accounting and audit procedures must comply with the organization’s charter and applicable tax laws.

An Audit Committee is commissioned by the Board of Directors of the nonprofit to monitor, review and oversee the nonprofit responsibilities to create and maintain accurate accounting and audit processes. The charter of responsibilities should be clear to all, so that the Committee may execute their duties without interference. At least one member of the Committee should be well-versed in accounting principles or, alternatively, a consultant should be budgeted for and hired to ensure that accounting procedures and fund disbursement are managed properly. And systematic check and balance processes should be created to eliminate improper or fraudulent handling of the nonprofit’s assets.

Effective Nonprofit Audit Committees fulfill nonprofit responsibilities by:

  • continually improving the financial system with well-defined procedures and reporting.
  • creating deterrents to mismanagement and fraud .
  • establishing effective audit processes, both internal and external.

Securing an Auditor

The Audit Committee is responsible for hiring an auditor to summarize the financial process. Charged with the oversight responsibility, the Audit Committee must make available all records for the auditor to perform effectively. Ongoing communication with the auditor is important to ensure that apparent obstacles that may be hindering the audit process are removed.

Reviewing the Audit Report

When the audit is completed and the report submitted, the Audit Committee will meet with the auditor to review the findings and ensure the nonprofit responsibilities are being met.  Ideally everything is in order. But if irregularities and variances should exist, these will be brought to light for discussion of futher investigation and resolution. Some discrepancies may require changes in procedure and stronger check and balance. Serious problems might result in employee dismissal, legal prosecution and a substantial revamping of the bookkeeping procedures.

Presenting to the Board of Directors

The Audit Committee will assemble a summary with specific conclusions and recommendations for presentation to the Board of Directors.  During this presentation, the Audit Committee will:

  1. Provide a summary of the audit.
  2. Summarize the current financial situation.
  3. Review variations or discrepancies discovered.
  4. Recommend solutions for resolving any mishandling issues.
  5. Make recommendations to strengthen overall financial management.
  6. Provide an assessment of the auditor and the audit process.

With Board approval, the Audit Committee will proceed to immediately resolve mismanagement issues.

Importance of the Audit Committee Function

Effective Audit Committees are vital to the life the organization and meeting nonprofit responsibilities.  Poor oversight may compromise the integrity of the organization and eventually jeopardize the future of the endeavor.

Contact Ernst Wintter & Associates LLP today to see how we can help you through the process of a nonprofit audit.


Full Scope or Limited Scope Audit – Which One and Why?

When planning for an audit of your 401(k) or other retirement plan, you might question if a full scope audit or limited scope audit should be conducted.  It is important to determine if your plan requires an audit, and know your options. Failure to comply with audit requirements can lead to a host of long-term complications for your business.

Is an Audit Required for My Company’s Retirement Plan?

Retirement plans are subject to U.S. Department of Labor and IRS regulations. For the protection of investors, these agencies ensure that they are appropriately managed. Generally, qualified benefit plans with 100 or more eligible participants, as of the first day of a plan year, require an audit. Each employee who is eligible to contribute to the plan is treated as an eligible participant, whether they contribute or not. Retirees and separated participantsalong with the beneficiaries of deceased participants who are receiving benefits, or are entitled to receive benefits, are also treated as eligible participants.

The regulations surrounding 401(k) audits are strict and complex. Non-compliance can lead to expensive fines and litigation. Trusting an experienced auditor to advise you throughout the audit process is essential to avoiding complications.

Full vs. Limited Scope Audit – Which is right for me?

Limited Scope Audits

To qualify for a limited scope audit, an insurance carrier or bank must act as the trustee or custodian for the plan. This entity must be state or federally chartered and regulated, supervised and subject to examination. The trustee must also certify to the accuracy and completeness of any investment information.

A limited scope audit works well for some. They usually come along with lower fees and fewer areas subject to audit testing. It’s important to note that the accounting firm that is charged with performing a limited scope audit cannot give an unqualified opinion on the plan’s financial statements. An unqualified opinion is an independent auditor’s report that your financials are fair and accurately presented. Reports that accompany limited scope audits are referred to as a Disclaimer of Opinion.

Full Scope Audits

In a full scope audit, audit work is performed on the plan’s investments. Procedures include sending confirmations to the custodian, trustee or insurance company to verify ownership of investments, along with the valuation of investments, investment transactions and investment income.

The accounting firm performing the full scope audit, will provide an independent auditor’s opinion on the plan’s financial statements.

The independent auditors’ report, financial statements and required schedules are filed with the Department of Labor. This is due on the last day of the 7th calendar month after the end of the plan year, unless an extension is requested.

It is vital for small to mid-size businesses to plan for the appropriate full or limited scope audit of their 401(k) plan. Contact Ernst Wintter & Associates at <a href=”tel:9259332626″>(925) 933-2626</a> to discuss your audit questions and determine which option is best suited for the unique needs of your business.