Financial Accountability For Grant Seeking Ministries - What it is and Why You Need It

As solicitors of public funds that are supposed toThe Full Audit usually begins around $5,000. The
be used to accomplish great things in thecost could be higher depending on the size of
community and the world, nonprofits must showyour ministry or the complexity of the audit. Here
they use donated funds for the purposesan auditor investigates and examines your
intended. They also need to show the sources ofministry's financial statements to ensure that you
their funding and what portion goes directly tohave adequate error detection and fraud
their mission versus toward administrative orprevention controls.
fundraising expenses. Financial audits are one solidFull audits verify (sometimes through statistical
way to reassure the public and funding sourcessampling) that all monies are due to the nonprofit
that you are financially accountable andand payable by it. It also thoroughly evaluates the
responsible.financial well being of the nonprofit. A full audit
Nonprofits are not legally bound to conduct audits.generally analyzes ratios and offers advice to
But in the interests of transparency andmanagement. At the end of audit, the audit firm
accountability and your ministry's long-termstates that it believes "the data presented is fairly
benefit, your bylaws should mandate them on anstated in accordance with generally accepted
annual basis. The Evangelical Council on Financialaccounting principles."
Accountability (ECFA) requires its members toA Review Audit begins around $2,500. This report
submit to an annual audit by an independentis much like a full audit except the audit firm does
auditing firm, one that follows generally acceptednot investigate or examine the nonprofit. Instead
auditing standards (GAAS) and generally acceptedyour nonprofit simply responds "to questions for
accounting principles (GAPP).all necessary data." A review includes a disclaimer
As the ECFA says, "An annual audit is an excellentindicating that it was up to the nonprofit to
tool for financial accountability, tracking diverseprovide the necessary information. A review does
funding sources and organizational goals.not analyze business ratios nor does it include a
Conducted at the end of the fiscal year by afull report to management.
professional accountant, an audit shows fundersThe Compilation With Disclosure starts out at
that you have effectively managed your funding$1,000. The report resembles a review but here
for the previous year and maintained the ability tothe nonprofit provides data and responds to
track, document, and dispense grant monies. Itauditor questions. Ratio analysis and a
also allows you to see how organizational fundsmanagement report are not used in a compilation.
were spent and if the funds spent correlated withA disclaimer indicates that the audit firm examined
your program goals."no data and that it depended on management to
Grant makers routinely request a copy of yoursupply all information.
most recent Audited Financial Statement. TheThe Compilation Without Disclosure begins at
annual audit fulfills their request. If you do not$500. It offers roughly the same level of review
have one, funders will want to know why andas an accounting or bookkeeping service would. It
you will likely hurt your chances of receivingincludes no investigation, no footnotes, and the
funding.nonprofit provides all of the data.
Different degrees of auditsWhatever kind of audit you need, your ministry
Audits and financial reviews vary according toshould find an audit firm that is skilled in nonprofit
cost and thoroughness. There are four basicauditing, up-to-date on accounting standards, and
levels of financial review, including the full audit: Fullfamiliar with your area of the nonprofit Christian
Audit, Review Audit, Compilation With Disclosures,ministry. It should also provide hands-on support
and Compilation Without Disclosures.and have an outstanding track record.