Your Nonprofit Library Third Shelf – Getting the U.S. IRS to Recognize Your Nonprofit as Tax Exempt

Here are the links to all the IRS forms and new tutorials the IRS has developed to help groups be recognized as tax exempt organizations. IRS recognition of a nonprofit as tax exempt allows donors to potentially receive a tax break for giving to the organization. It may also affect your need to pay sales tax in your state. Make a copy of all the publications and forms or mark them for easy access. Your local IRS office can secure copies for you without cost.

NOTE: Many IRS Forms and Publications are related to taxpayers; they change every year. The Forms and Publications related to taxpaying donors are also subject to annual changes. The IRS also periodically amends other Forms and Publications related to your tax exemption. Generally, however, the IRS does not change the number of the Form or Publication so you can search for an updated version from most of the links below.

Applying For Tax Exemption

IRS List of Forms by Numbers, includes all for tax exemption and all other IRS forms - http://www.irs.gov/formspubs/lists/0,,id=97817,00.html

The starting place for the IRS and Charitable Organizations - http://www.irs.gov/charities/charitable/index.html

Application Process - http://www.irs.gov/charities/article/0,,id=96210,00.html

The following are the current links to the IRS mini-course on tax exempt organizations - http://www.stayexempt.org/home_mini_courses.html

Select a title below to watch the streaming presentation. You may also download a presentation to your hard-drive, please visit our help section for detailed instructions.

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ABC's for Exempt Organizations
http://www.irs.gov/charities/article/0,,id=187787,00.html

Navigating IRS Resources for Tax-Exempt Organizations
Posted on June 30th, 2008 Download Presentation
Ever wonder what the IRS Web site contains for exempt organizations? This mini-course will show you what’s available and how to find it! (approximately 7 minutes)

Political Campaigns and Charities: The Ban on Political Campaign Intervention
Posted on June 30th, 2008 Download Presentation
A 501(c)(3) organization jeopardizes its exempt status when it intervenes in a political campaign. This mini-course provides examples of prohibited activities and explains steps an organization should take to avoid an inadvertent violation. (approximately 16 minutes)

The Wonderful World of Foundation Classification (Part I)
September 09, 2008 Download Presentation
All 501(c)(3) organizations also have something called a “foundation classification.” This mini-course covers the basics of two of the more common types. (approximately 18 minutes)

Can I Deduct My Charitable Contributions?
September 09, 2008 Download Presentation
Is this a question you hear from your donors? This brief overview of deductibility can help your exempt organization understand the rules of what’s deductible and what’s not. (approximately 20 minutes)

Applying for Tax-Exempt Status
September 09, 2008 Download Presentation
If your organization is brand-new, and you’re thinking about applying for tax-exempt status, take a look at this mini-course first. You’ll learn about IRS resources that will make the process easier and quicker. (approximately 19 minutes)

Preparing to File the New Form 990
October 17, 2008 Download Presentation
For the 2008 filing year, exempt organizations will be working with a completely redesigned Form 990 or 990EZ – the first major overhaul of these documents in 30 years. This course provides an overview of the changes IRS has made, and the next four courses provide a line-by-line walk through of the different sections of the course and provide guidance and tips to completing an error-free return. (approximately 14 minutes)

The Redesigned Form 990 –Part I
October 17, 2008 Download Presentation
In this mini-course, you’ll receive general instructions for completing the form and walk through the heading and financials sections. (approximately 37 minutes)

The Redesigned Form 990 –Part II
October 17, 2008 Download Presentation
This mini-course walks you through the Accomplishments, Compliance, and Compensation sections of the new 2008 Form 990. (approximately 25 minutes)

The Redesigned Form 990 –Part III
October 17, 2008 Download Presentation
In this mini-course, get a walk through of the Governance, Management, Disclosure, Summary sections, the Checklist of Required Schedules and Schedule A. (approximately 25 minutes)

The Redesigned Form 990 –Part IV
October 17, 2008 Download Presentation
This mini-course takes you line by line through Schedules C, F, G, I, M and R. (approximately 37 minutes)

Types of Tax-Exempt Organizations - http://www.irs.gov/charities/content/0,,id=96931,00.html

Applying for Tax Exemption - The IRS issued a revenue procedure (Rev. Proc. 2007-52) that describes the procedures by which an organization applies for tax-exempt status, and by which the IRS determines whether to grant tax-exempt status. http://www.irs.gov/irb/2007-30_IRB/ar16.html#d0e17097

Tax Kit - many of the forms here about tax exemption may be filled out and completed online - http://www.irs.gov/charities/article/0,,id=96774,00.html

IRS Publication 4220 – Applying for 501 (c) (3) Tax-Exempt Status (20 pages) - http://www.irs.gov/pub/irs-pdf/p4220.pdf

IRS Form 1023 for organizations filing under section 501 (c) (3) (28 pages) –
http://www.irs.gov/pub/irs-pdf/f1023.pdf

Form 1023 Instructions (38 pages) - http://www.irs.gov/pub/irs-pdf/i1023.pdf

Form 1023 FAQs - http://www.irs.gov/charities/article/0,,id=130101,00.html

Form 1024 for organizations filing under sections 501(c)(2), (4), (5), (6), (7), (8), (9), (10), (12), (13), (15), (17), (19), and (25) (25 pages) - http://www.irs.gov/pub/irs-pdf/k1024.pdf

IRS Publication 557, Tax Exempt Status for Your Organization (72 pages) – Revised June 2008 http://www.irs.gov/pub/irs-pdf/p557.pdf

Form 8718 - shows Federal fees for filing Form 1023 ($750 or $900) - http://www.irs.gov/pub/irs-pdf/f8718.pdf

IRS Publication 4221, Compliance Guide for 501(c) (3) Tax Exempt Organizations and Record Retention (36 pages) - http://www.irs.gov/pub/irs-pdf/p4221pc.pdf

Pension Protection Act of 2006 Revises EO Tax Rules - http://www.irs.gov/charities/article/0,,id=161145,00.html

Life Cycle of a Public Charity - http://www.irs.gov/charities/charitable/article/0,,id=122670,00.html

Publication 1828 - Exempt Organizations Tax Guide for Churches and Religious Organizations; also comments about lobbying and political activity (32 pages) - http://www.irs.gov/pub/irs-pdf/p1828.pdf and http://www.irs.gov/newsroom/article/0,,id=122887,00.html

Frequently Asked Questions with Answers - http://www.irs.gov/faqs/index.html and http://www.irs.gov/charities/content/0,,id=96986,00.html

IRS Releases Report on Tax-Exempt Charitable Financing Compliance Project - http://www.irs.gov/taxexemptbond/article/0,,id=186653,00.html

Publication 4245 – Common Reasons for Rejection and Power of Attorney and Declaration of Representative Pamphlet -
http://www.irs.gov/pub/irs-pdf/p4245.pdf

Form 2848, Power of Attorney and Declaration of Representative Form - http://www.irs.gov/pub/irs-pdf/f2848.pdf

Contributions - http://www.irs.gov/charities/article/0,,id=96102,00.html

Charitable Contributions Substantiation and Disclosure Requirements (16 Pages) - http://www.irs.gov/pub/irs-pdf/p1771.pdf

Publication 526, Charitable Contributions for Use Preparing 2008 Tax Returns -
http://www.irs.gov/pub/irs-pdf/p526.pdf

Public Disclosure - http://www.irs.gov/charities/charitable/article/0,,id=182722,00.html

Form 8734 Support Schedule for Advance Ruling Period – This form is going through changes because the IRS is no longer issuing advanced rulings. See link to blogs under Other Resources, below.
http://www.irs.gov/charities/charitable/article/0,,id=185605,00.html and http://www.irs.gov/pub/irs-pdf/f8734.pdf

Annual Electronic Filing Requirement for Small Exempt Organizations — Form 990-N (e-Postcard) - http://www.irs.gov/charities/article/0,,id=169250,00.html

IRS Completed 2008 Form 990 Instructions and Background Documents - http://www.irs.gov/charities/article/0,,id=181089,00.html

2008 Form 990-EZ Instructions Released -
http://www.irs.gov/charities/article/0,,id=186630,00.html

e-file for Charities and Non-Profits - http://www.irs.gov/efile/article/0,,id=108211,00.html

Political Activities Compliance Initiative (2008 Election) - http://www.irs.gov/charities/charitable/article/0,,id=181565,00.html

EO Update is a periodic newsletter with information for tax-exempt organizations and tax practitioners - attorneys, accountants, and others - who represent them, from Exempt Organizations (Tax-Exempt and Government Entities) at the IRS, subscribe

The IRS has the Basic Tools for Tax Professionals, those CPAs who may audit your books and work on your 990.
http://www.irs.gov/taxpros/article/0,,id=118004,00.html

Remarks of Steven T. Miller, IRS Commissioner, Tax Exempt and Government Entities Before the Georgetown Law Center Seminar on Representing and Managing Tax-Exempt Organizations. His remarks centered on two topics: one is governance, and the other efficiency and effectiveness. How will the IRS address them? Read the speech carefully.
http://www.irs.gov/pub/irs-tege/represent_manage_speech_042408.pdf

Other Resources:

IRS Makes Filing For Nonprofit Tax Exemption Easier, Sort Of

IRS Rules on the Phase-in for Nonprofit Organizations to File the New 990 Series Forms

Effect of IRS Ruling Eliminating Advanced Rulings On Form 1023

You Can Pay Me Now Or You Can Pay Me Later

Reasons Not to Incorporate a Nonprofit Organization

The Nonprofit Business Plan - Program Precedes Money. Planning Precedes Program.

Developing a Nonprofit Tax Exempt Organization - Outline of First Steps

Starting a Nonprofit by Carter McNamara - http://www.managementhelp.org/strt_org/strt_np/strt_np.htm

Idealist.com’s article and links, Where to start when creating a nonprofit - http://www.idealist.org/if/idealist/en/FAQ/QuestionViewer/default?section=02&item=01

Nolo Press Nonprofit Basics – http://www.nolo.com/article.cfm/objectID/91D3BDDE-D91E-4667-951A05E6F14CB1F1/111/262/ART/

Nonprofit Leadership Center of Tampa Bay http://nonprofittampabay.org/ns_nonprofitstartup.htm

OMBWatch - http://www.ombwatch.org/article/archive/518

Your Nonprofit Library Second Shelf - Sample Nonprofit Fiscal Audit Agreement

This article is part of the continuing series concerning nonprofit fiscal audits.

Auditors are prepared to create what they call a “Letter of Engagement” when contracting with clients. It may be basically a form letter with changes pertinent to each client. I found the Letters of Engagement did not spell out enough details for my satisfaction. Therefore when we sent out a Request for Proposal (RFP) to auditors, I included a copy of a draft agreement that we would be using. Frequently we developed cross references to each document, our Agreement and their Letter of Engagement after working out all contradictory sections.

Here is a sample agreement and a list of resources to help you prepare for the audit agreement or letter of engagement. It is offered to provide issues for consideration. I am not suggesting that all auditors will be happy if you were to use this sample – which I do not recommend.

1. This Agreement, between NPO XXX (the Organization), 111 New Street, Anywhere NY 00000-0000 and (Name of Audit Firm, the Contractor), 222 New Street, Anywhere, NY 00001-0001, shall be effective as of the date of execution below.

2. The Contractor will audit the financial records, accounts and statements of the Organization as of July 1, 2008 and for the year ended June 30, 2009.

3. The audit will be conducted in accordance with generally accepted government auditing standards (GAGAS); the standards for financial audits contained in Government Auditing Standards (GAS) issued by the Comptroller General of the United States; the AICPA guide, Audits of State and Local Government Units; OMB Circular A-122, Cost Principles for Non-Profit Organizations; and the Office of Management and Budget (OMB) Single Audit Circular A-133 (and any other applicable standards).

4. The audit will include tests of the accounting records and such other audit procedures as necessary to express an independent opinion on the statement of financial position and the related statements of activities, and cash flows, and Reports on Compliance with Laws and Regulations and the Internal Control Structure.

5. The Contractor will plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Under the concept of reasonable assurance, the Contractor will exercise its judgement about the number of transactions to be examined and the areas to be tested. There is, therefore, a risk that material errors, irregularities or illegal acts, including fraud or defalcations may exist and not be detected. The Contractor will, however, advise immediately the Organization’s Audit Committee of any such matters that come to its attention. The Contractor’s responsibility is limited to the period covered by the audit and does not extend to matters that might arise during any later periods.

6. The Contractor, as part of the engagement, will request written representations from the Organizations attorneys. Prior to the conclusion of the audit, the Contractor will also request certain written representations from the Organization management about the financial statements and related matters. It is understood that these financial statements are the responsibility of management. The responsibility includes the maintenance of adequate records and related internal control structure policies and procedures, the selection and application of accounting principles, and the safeguarding of assets. The Contractor will advise management about the appropriate accounting principles and their application, and will assist in the preparation of the financial statements, if necessary.

7. The Contractor understands that it has the responsibility:

• to prepare the audit reports in accordance with the requirements and standards for financial audits contained in Government Auditing Standards (GAS) issued by the Comptroller General of the United States; the AICPA guide, Audits of State and Local Government Units; OMB Circular A-122, Cost Principles for Non-Profit Organizations; and the Office of Management and Budget (OMB) Single Audit Circular A-133 (and any other applicable standards).
• to prepare and electronically submit a Summary Report Form on Noncompliance with Laws and Regulations, Questioned Costs and Reportable Conditions;
• to maintain all records that are pertinent to this Agreement retain them for a period of three years (or other amount of time) following final payment against the Agreement. The Organization will assume the duties of maintain the records after that period. The records, while maintained by the Contractor, shall be subject at all reasonable times for inspection, review and audit by any Federal or state government official as authorized by law;
• to provide a special report to the NPO XXX on noncompliance in the event that the recipient fails to do so in accordance with the requirements of the Organization’s Audit Committee and any other entity required by an audit guide for recipients and auditors; and
• to notify NPO XXX’s Audit Committee within five (5) business days of its termination or cessation of services to the Organizatio

8. The Contractor will also prepare the Federal tax return (IRS Form 990) and State and Local returns (where required) with the management of NPO XXX for the year ending June 30, 2009. Organization will file the 990 and any other returns prepared by Contractor.

9. Entrance and exit conferences will be held with the Organization management and the Audit Committee or Board of Directors.

10. The Organization management responses to draft audit reports will be delivered to the Contractor for inclusion in the final reports, where practical.

11. The Contractor will deliver to the Organization:

• Three (3) copies of the draft audit reports no later than October 15, 2009;
• the original and thirty (30) copies of the financial audit reports no later than 120 days after closing; and
• the State and Federal tax returns within a reasonable time after the acceptance of the final audit reports

12. In consideration for the satisfactory performance of the audit, the Contractor will receive $ __________, paid as follows: One half upon completion of fieldwork and balance to be paid upon completion of final audit report and delivery of the Federal tax returns. .
13. The Contractor will immediately notify the Organization’s Audit Committee of any significant and/or reportable conditions noted during the course of the audit.

14. Audit working papers will be prepared in accordance with Government Auditing Standards, and will be retained by the Contractor for at least three (3) (or other amount of time) years from the date of the final audit report. The working papers will be available for examination upon request by authorized representatives of funding and government sources

15. The certifications numbered A through H are incorporated by reference and made a part of this Agreement.

16. In the event that there is a significant change in funding from the (names of funders) and/or a change in the legal or regulatory requirements applicable to this audit, the Organization shall be allowed either to: (1) withdraw from this engagement after paying in full for any and all services rendered by the Contractor prior to the date of withdrawal; or (2) seek, without penalty, a negotiated modification of this Agreement which would result in the satisfaction of the new legal requirements through the services to be performed under the modified Agreement.

17. The fees set by the Agreement are based upon the following assumptions: management will respond promptly to all requests for basic information and/or documentation; the books will have been posted through the year; all adjustments will have been posted; management personnel will prepare cash and other confirmations; and that year-end schedules supporting the account balances will be provided.

18. The Contractor will give an oral presentation of its audit report to the Board of Directors or the Audit Committee of the Board.

19. The Consultant agrees to hold harmless and indemnify Contractor, its officers, agents and employees, from and against any and all actions, suits, damages, liability or other proceedings which may arise as a result of performing services rendered under this Agreement.

20. The Consultant agrees, at its sole cost and expense, to maintain adequate general liability insurance, workers’ compensation, professional liability and automobile liability insurance during the period of this Agreement.

21. If circumstances arise that will require additional services and time by the Contractor, the Contractor will notify the Organization and obtain its agreement prior to undertaking such activities. The hourly fee for such agreed to services will be $________ .

22. The terms of this Agreement may be modified only in writing, signed by duly authorized representatives of the parties.

23. If the parties are unable to resolve a dispute regarding the acceptability of deliverables under this Agreement, the dispute will be submitted to the (name of arbitration organization) for resolution through binding arbitration.

24. This Agreement, which includes the matter specifically incorporated by reference, constitutes the entire Agreement between the parties.

25. This Agreement has been made, and shall be construed, in accordance with the laws, rules and regulations of the Federal Government and the State of New York (your state).

Executed on the ________ day of July, 2008 for the parties by their duly authorized representatives

For NPO XXX Auditor

CERTIFICATIONS

A. The individual signing certifies that he/she is authorized to contract on behalf of the Contractor and to make these certifications.

B. The individual signing certifies that the Contractor is not involved in any agreement to pay money or other consideration for the execution of this Agreement, other than to an employee of the Contractor.

C. The individual signing certifies that the Contractor meets the independence standards of the Government Accountability Standards (GAO) issued by the comptroller General of the United States.

D. The individual signing certifies that he/she is aware that all individuals to be assigned to the audit have met the GAO Continuing Education Requirement of 80 hours of continuing education every two years; and that 24 hours of this education have been subjects directly related to the auditing of government grants.

E. The individual signing certifies that he/she has read and understands the GAO requirement of an external quality control review at least once every three years.

F. The individual signing certifies that the Contractor, and any individuals to be assigned to the audit, do not have a record of substandard audit work and have not been debarred or suspended from doing work with any Federal, state or local government. (If the Contractor or any individual assigned to the audit has been found in violation of any state or AICPA professional standards, this information must be disclosed.)

G. The Contractor certifies that it and its employees will abide by the Organizations policies on drugs, alcohol and smoking in the workplace, recycling, anti-sexual harassment, safety in the workplace, use of equipment and equal opportunity employment.

H. The individual signing certifies that the Contractor does not discriminate against any employee or applicant for employment because of race, color, religion, sex, sexual orientation, veteran status, age, national origin, disability, or any other basis prohibited by law. The Contractor shall take affirmative action to insure that employees are treated during their employment, without regard to race, color, religion, sex, sexual orientation, veteran status, age, national origin, disability, or any other basis prohibited by law. Such action shall include, but not be limited to the following: employment, upgrading, demotion, or forms of compensation; and selection for training, including apprenticeship. The Contractor will, in all solicitations or advertisements for employees, placed by or on behalf of the Contractor, state all qualified applicants will receive consideration for employment without regard to race, color, religion, sex, sexual orientation, veteran status, national origin, disability or any other basis prohibited by law.

Dated this _______ day of July, 2009
_______________________
Name of Organization’s Authorized Representative
_______________________
Signature of Organization’s Authorized Representative
________________________
Contractor’s Name
________________________
Signature of Contractor’s Representative
________________________
Federal ID Number or Social Security Number

NOTE: The audit report includes a Statement of Financial Position (Balance Sheet), Statement of Activities (Income Statement), Statement of Cash Flow, Notes to Statements, and possibly a Statement of Functional Expenses. In order to print the opinion letter or otherwise associate an audit firm's name with your statements, you must present the whole report.

RESOURCES

The AICPA Audit Committee Toolkit: Not-for-Profit Organizations - http://www.aicpa.org/Audcommctr/toolkitsnpo/homepage.htm

See the Check List to Evaluate the Engagement Letter (Scroll down for a printable copy) http://www.aicpa.org/audcommctr/toolkitsnpo/Evaluation_of_Auditors_Engagement_Letter.htm

Controlling the Audit Process completely revised and expanded by Hilda S. Renteria, CPA and Edited by Catherine Barker with sample documents and forms
http://www.icpas.org/cpaspi/pdf/auditprc.pdf

PowerPoint presentation about audits, Inside Your Audit: Secrets Revealed by Andrea T. Mills, MBA, CPA, CCSA
http://www.lisc.org/docs/events/fm2006/inside_your_audit.pdf

AICPA’s article Common Engagement Deficiencies in Audits Performed Under OMB Circular A-133 Noted in Peer Reviews, Ethics Investigations, and Federal Office of the Inspector General (OIG) Quality Control Reviews http://gaqc.aicpa.org/Resources/OMB+Circular+A-133/Common+Engagement+Deficiencies/

A Management Letter from CAPIN CROUSE LLP, Accountants & Consultants to the Board of Directors, Wycliffe Bible Translators International Inc. Dallas Texas
http://www.wycliffe.net/Portals/8/financials/WBTI_Audited_StmtsFY02.PDF

Office of Management and Budget Circulars for Nonprofits - http://www.whitehouse.gov/omb/circulars/index-education.html

Sample Audit Engagement Letter Single Audit
http://support.rg.thomson.com/doc/aa/npo_cl_1.2.pdf

Auditing Services Required for MetroPool, Inc.
http://www.das.state.ct.us/rfpdoc/DOTMetropool01/bids/mpauditservices2007.pdf

North Carolina Department of Health and Human Services Fiscal Nonprofit Administration, Audits for State Grants Compliance
http://info.dhhs.state.nc.us/olm/manuals/ooc/fnp/man/Fiscal_Non-Profit_Admin-06.htm

Excellent Material about Boards and Their Legal and Fiscal Obligations - http://www.boardsource.org/

Sample Audit Agreement from the Ed. Fund, http://www.edfundwest.org/downloads/08_Fiscal_Agent_Agreement.pdf

Your Nonprofit Library Second Shelf - A Sample Nonprofit Audit RFP

Your Nonprofit Library Second Shelf - Request for Audit Proposals (RFP)

Your Nonprofit Library Second Shelf – Considering An Audit

Your Nonprofit Library Second Shelf – The Nine Threshold Points for a Nonprofit Fiscal Audit

This posting, Your Nonprofit Library Second Shelf – The Nine Threshold Points for a Nonprofit Fiscal Audit, is a part of an ongoing series about nonprofit organizations considering formal independent audits.

When must a nonprofit tax exempt 501 (c) (3) organization have a formal audit by an outside independent auditor? Audits are not required for all nonprofit tax exempt 501 (c) (3) organizations. Smaller organizations with revenue less than $25,000 can perform an internal annual audit. Groups with revenue in excess of $50,000 should be considering hiring an auditor each year. For smaller organizations the changes to the IRS Form 990 may be helpful enough to ask funders and others if filing the most recent Form 990 or 990-EZ or 990-N will suffice as a substitute for an audit.

Independent audits help show the board and the community that appropriate fiscal steps are being taken and that the group is accountable to those supporting it.

There are at least nine threshold points that can lead to an audit:

1. The board of trustees/directors decides to have a formal audit by an independent auditor. The board is the responsible fiscal authority of the organization and can require an audit as it wishes.

2. The new CEO/Executive Director requests a formal audit by an independent auditor from the board as a condition of accepting the position after discussions with the board, and reviewing financial and administrative records.

3. The state may require an audit when a charity hires a professional fundraiser who solicits contributions for the organization for a fee. Check your state law or talk to an attorney familiar with nonprofit law in your state.

4. If your organization is fundraising in states other than its home state, the other state may require a formal independent audit as a condition for raising funds. The trigger point for an audit may be the amount of funds raised in that state. Check the state law in each state you plan to do fundraising before the drive begins. You may have to seek legal assistance for this in other states. States may also require registration for a professional fundraiser.

5. The state may also require an independent audit when the organization has a certain amount of revenue in a year or in a fiscal year. It could be any amount, but some states have set the threshold at $250,000 annual revenue but it can be more or less. Check your state law or talk to an attorney familiar with nonprofit law in your state.

6. A grant, contract or funder may require as a condition of funding that an independent audit be filed each year of the funding. The organization should include the cost of that audit or a fair share of that audit as part of the grant budget in the application.

7. The Federal Office of Management and Budgets Circular No. A-133 requires an independent single audit for those organizations that receive $500,000 or more in federal grants. Section 105: Auditor means an auditor that is a public accountant or a Federal, State or local government audit organization, which meets the general standards specified in generally accepted government auditing standards (GAGAS). The term auditor does not include internal auditors of non-profit organizations. Subpart B: Audit required. Non-Federal entities that expend $300,000 ($500,000 for fiscal years ending after December 31, 2003) or more in a year in Federal awards shall have a single or program-specific audit conducted for that year in accordance with the provisions of this part.

http://www.whitehouse.gov/omb/circulars/a133/a133.html

8. An immediately previous audit found significant deficiencies and material weakness in the operation of the organization. The subsequent audit will show whether the organization has corrected the deficiencies and weaknesses, has accepted and enacted the recommendations of the auditor and become more fully accountable fiscally and in the management of fiscal elements.
9. When two or more nonprofit organizations begin to talk about merging or acquisition aka "take over" (yes, there are nonprofit take overs), one discussion point should be that each will have a formal independent audit prior to finalizing the merger or acquisition. The financial due diligence may not require a full independent audit in all mergers but what form the due diligence will take should include the consideration of a full independent audit. Due diligence is the process of investigation of a business, individual or organization and includes fiscal as well as other considerations, property ownership, potential for legal action for instance.

Resources

For the links to state offices that regulate charities, charitable solicitations and nonprofit organizations see the National Association of State Charity Officials for all states - http://www.nasconet.org/agencies

For a list of the states that require registration for fundraisers see the Multi-State Filer Project, The Unified Registration Statement:

Home Page - http://www.multistatefiling.org/

States that will accept the Unified Registration Statement - http://www.multistatefiling.org/#yes_states and

States that require registration but will not accept the Unified Registration Statement - http://www.multistatefiling.org/#no_states

Strengthening Transparency, Governance, Accountability of Charitable Organizations, A Final Report to Congress and the Nonprofit Sector June 2005 by the Panel on the Nonprofit Sector recommends a threshold of $1 Million total annual revenue for an independent audit. For smaller organizations with at least $250,000 and under $1 million in total annual revenues, a financial statement review by an independent accountant offers a less expensive option while still providing the board, regulators, and the public with some assurance of the accuracy of the organization’s financial records. -

http://www.nonprofitpanel.org/report/final/panel_final_report.pdf

Statement on Auditing Standards (SAS) No.112, Communicating Internal Control Related Matters Identified in an Audit from the American Institute of Certified Public Accountants and the resources listed there –

http://www.aicpa.org/download/members/div/auditstd/AU-00325.PDF and

http://ebpaqc.aicpa.org/Resources/General+Accounting+and+Auditing/New+Auditing+Standards/SAS+No.+112.htm
The Better Business Bureau aka “Wise Giving Alliance” states this standard:
Make available to all, on request, complete annual financial statements prepared in accordance with generally accepted accounting principles. When total annual gross income exceeds $250,000, these statements should be audited in accordance with generally accepted auditing standards. For charities whose annual gross income is less than $250,000, a review by a certified public accountant is sufficient to meet this standard. For charities whose annual gross income is less than $100,000, an internally produced, complete financial statement is sufficient to meet this standard.

http://us.bbb.org/WWWRoot/SitePage.aspx?site=113&id=4dd040fd-08af-4dd2-aaa0-dcd66c1a17fc

Nine Steps to Prevent Merger Failure by Gerald Adolph, Karla Elrod, and J. Neely, HBS Working Knowledge, http://hbswk.hbs.edu/archive/5271.html

Previous postings in this “Nonprofit Audit” series are

Your Nonprofit Library Second Shelf - A Sample Nonprofit Audit RFP

Your Nonprofit Library Second Shelf - Request for Audit Proposals (RFP)

Your Nonprofit Library Second Shelf – Considering An Audit