Question: Audits required for nonprofit organizations?

I was in a meeting tonight and someone said that 501(c)(3) organizations are required to have a CPA audit each year. Is this true?

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Advice from PTO Today

Elly writes:

The IRS does not have any requirement for tax-exempt charities like PTOs to undergo an annual audit. But Elly says you should have your own rule. In fact, she recommends that you write it into your bylaws.

An independent audit helps ensure that your parent group’s finances are orderly and up-to-date. It also identifies internal controls that can help improve the integrity of your financial systems. Theft and mismanagement do happen—more often because of opportunity than any malicious desire to steal from the group—but they are often preventable. Conducting an annual audit can uncover potential problems before they become serious. (Bonus: It also can serve as a budgeting and planning tool!)

You don’t need to hire a professional CPA to perform your audit; instead, consider forming an audit committee of parents or members of your community. The audit committee should consist of three to five people, none of whom have access to the PTO’s checkbook or bank account. Make sure you specify the requirements, responsibilities, and time commitment expected of these volunteers beforehand so they know what to expect and can get the job done right. For more information, check out the article “Annual Audit: How and Why”.

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