5. Conduct Independent Financial Reviews, Particularly Audits

Charitable organizations need to have independent reviews of their financial procedures, controls, and policies in order to provide strong financial safeguards. Charitable organizations that are required to file a Form 990 or 990-PF and that have average annual revenues of $1 million or more should have an audit conducted of their financial statements and operations. These statements should be made available for public inspection. Charitable organizations that are required to file a Form 990 or 990-PF and that have at least $250,000 and under $1 million in total annual revenues should have their financial statements reviewed by an independent public accountant. Organizations with less than $250,000 in annual revenues should consider periodically obtaining a review of financial statements or other means of independently verifying financial statements and controls.

Charitable organizations that conduct audits should:

• Avoid any conflict of interest in staff exchange between audit firm and organization;
• Disclose your audited financial statements in a current and easily accessible way; and
• Consider rotating audit firms or partners every five years or more when it makes sense to do so.

Audit committees are responsible for:

• Retaining and terminating the independent auditor;
• Reviewing the terms of the auditor’s engagement at least every five years;
• Overseeing the performance of the independent audit;
• Conferring with the auditor to ensure that the affairs of the organization are in order;
• Recommending approval of the annual audit report to the full board;
• Overseeing policies and procedures for encouraging whistleblowers to report questionable accounting or auditing matters of the organization;
• Approving any non-audit services performed by the auditing firm;
• Reviewing adoption and implementation of internal financial controls through the audit process; and
• Monitoring the organization’s response to potentially illegal or unethical practices within the organization, including but not limited to fraudulent accounting.
  

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