Nonprofit Audit VS Nonprofit Review

Running a nonprofit organization differs from running a for profit organization in many ways. One of these distinct differences is the importance of transparency from nonprofit organizations. Both audits and reviews are a way to provide a third-party analysis of your organization’s finances, therefore achieving this required transparency. More often than not, audits are a requirement for funding (although there are times you may be able to get away with a review).

Although audits and reviews are very similar, they do have some key differences. So, how do you decide which option is best for your organization? The answer will depend on the size of your organization, the resources that you have available and what kind of funding you receive.

Let’s look at some key differences between audits and reviews:

1. Cost

Audits are going to be more expensive than reviews (about double the price). This is because they are more comprehensive and time-consuming. An audit may run an organization anywhere between $10K-$20k. This may seem like a big hit but will provide ultimate transparency to your donors, as well as federal and state governments. If your organization has a gross revenue that surpasses $500k, an audit is likely the best choice for you. If you fall below $500k, you may be able to get away with a less expensive review.

Generally, the larger and more complex your organization is, the more likely it is that you will require an audit. It could also be a worthwhile strategy to rotate between audits and reviews on alternating years.

2. Depth

Although audits and reviews are both providing a third-party analysis, an audit is ultimately providing a more in-depth analysis. The auditor provides an expert level deep dive into your documentation and finances. They conduct extensive research and testing, providing the highest level of assurance. Basically, they leave no stone unturned. On the other hand, a reviewer will only analyze a certain percentage of documents. They may be able to identify some problem areas but overall, they are not identifying a full scope of red flags nor are they extensively testing your financial controls.

3. Additional Services

Audits, unlike reviews, often include a number of additional services. An auditor will go the extra mile in order to develop an understanding of your organization’s internal control environment. The additional services include walk-throughs of your office space, physical inspections and observations. They will also confirm balances and transactions with outside parties, unearthing an additional layer of transparency. In addition, auditors will conduct tests wherever they deem necessary. Reviews do not include any of these additional services.

Conclusion

In order to determine whether your organization would be better suited for an audit or for a review, make sure to take these key differences into account. You will need to assess your reasoning for an audit/review, the size and complexity of your organization, your budget and your unique internal environment. If you feel that an audit is a requirement for your specific type of funding, know that you can at least inquire to see if a review would be acceptable (even if just on a bi-annual basis).