Not all businesses and organizations are for-profit. Some of these organizations, known as nonprofits, provide for the marginalized, to help raise awareness on certain issues, and to promote good will and peace. Today, we will look more into nonprofits and the requirements for a California nonprofit audit.
What are Nonprofit Organizations?
Nonprofits come in the form of charities, cooperatives, and foundations, and other various setups. There are several requirements needed in order to establish a nonprofit organization, just as one is supposed to establish a business. There are different requirements depending on which state the nonprofit organization is to be registered, and for California, the following is required:
- Name of the organization.
- The articles of the organization.
- The board of directors of the organization.
- The bylaws of the organization as well as its conflict of interest.
- Employer Identification Number (IEN) of the organization.
- Initial registration form for the California Attorney General’s Registry of Charitable Trusts.
Nonprofit organizations get their budget from donations, surplus revenues from their mother companies, or the state wherein they are registered. They can also apply for tax exemptions provided they submit the necessary requirements set by the International Revenue Service or IRS.
Though nonprofit organizations are not supposed to have an annual revenue, they still get money from the sources stated above. Thus, they are sometimes required to submit an audit report on the state wherein they are registered in order to ensure that they are not operating maliciously.
Audit Requirements for Nonprofit Organizations
As with the requirements for establishing a nonprofit organization, its requirements for auditing are also dependent on the state where it is registered. For a California nonprofit audit, a nonprofit organization is required to submit an audit done by its personal accountant whenever it acquired more than two million dollars of annual revenue in all forms.
An organization that acquired a revenue of more than two million dollars is required to prepare a financial report. This report includes:
- Transactions done by the organization.
- An examination of the organization’s financial records.
- The checks and balances done by the organization.
The auditing will be done by an independent certified public accountant to be appointed by the organization, and will be checked by the auditing committee to be appointed by the governing body.
There are a number of technicalities in the formation of the auditing committee to ensure that the report made is not biased and is objective in nature. The primary task of the auditing committee is to have the report thoroughly cross-checked in order to look for anomalies if there are any. If they found the audit reporting satisfactory, they will accept it and the organization will be allowed to operate for the following fiscal year.
Although nonprofit organizations are established in order to provide more to the society than what they receive, there are instances where these provisions are taken advantage of. Thus, the state requires nonprofit organizations to submit audit reports to ensure that they are operating within the bounds that are given to them. If you are in need of a firm that can help you with your California nonprofit audit, we suggest you call Ernst Wintter & Associates LLP today.