How to Select a Nonprofit Auditor

An annual nonprofit audit provides assurance to grantors, donors, bankers, and others that the financial statements of your organization provide an accurate picture of your financial health. However, choosing a nonprofit audit firm is about more than just the final audit report. The right CPA firm can be an invaluable advisor before, during and after the nonprofit audit process.

Not-for-profit entities have many specialized and complex needs when it comes to accounting and auditing. It is important to select a firm that is dedicated to staying current and knowledgeable in the constantly changing not-for-profit sector. The size of a firm doesn’t dictate the level of expertise but rather it is their commitment to quality and to the sector that sets them apart.

In addition to the challenges of properly applying financial accounting standards, some of which are unique to nonprofits, many organizations need to have their compliance with federal grant award requirements audited as well. A commitment to quality in this area is often demonstrated by a firm’s voluntary membership in the Government Audit Quality Center of the American Institute of CPAs.

The first step in building a relationship with a high-quality CPA firm is the preparation of a concise and meaningful request for proposal (RFP). A quality RFP will result in higher quality proposals and will help to reduce the time and effort needed to evaluate the responses. It is important that the questions asked in the RFP provide you with relevant information upon which to base your decision. It is also important that it provide sufficient information about your organization and its needs so that the firms can provide a meaningful and comprehensive response. The RFP should outline the proposal and selection process, as well as summarize the background, objectives, expectations, and requirements of the engagement. Be sure to send your most recent audited financial statements, if any, as an attachment.

If you start with a template RFP, be sure to remove sections that are not directly relevant to the information you need and add any questions that you feel are missing. For a sample, RFP click here or contact me directly.

Once your RFP is prepared, spend some time researching local area firms to see who specializes in serving the needs of nonprofits. Ask colleagues at other organizations for their input. How do they like their current firm? Have they had experience with other firms in the past? Select four to six firms to include in your process. By pre-screening firms and requesting fewer proposals, you will get a higher quality result in far less time. Allow firms two to four weeks to prepare their responses. Expect to receive a call for additional information from the most interesting firms.

Once the proposals have been received, evaluate them first on technical merit. How fully have they responded to the request? Are the responses in line with or exceeding your expectations? Are there any areas that are cause for concern? Contact the references provided and ask how it is to work with the firm’s personnel. Only after you have rated the firms on technical aspects should you consider the price. While the price is always a factor, the lowest price does not guarantee the highest quality audit or the best ongoing relationship.

After you have narrowed down the firms to the top two or three, invite them in for an interview. The nonprofit audit process and, even more importantly, the advice and assistance received throughout the year in a relationship. Relationships are personal and it is important to select a firm that is a good cultural fit for your organization. An interview is an excellent opportunity to get a feel for the culture of a firm and whether the people within the firm will be a good fit for your staff.

In making the final decision, don’t hesitate to request additional information or ask more questions. When the final firm has been selected, make time to meet with them well in advance of the audit to open lines of communication and start developing the relationship that will benefit you and your organization for many years to come.