Government GPS

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Understanding Government and Nonprofit Auditing Risks

School districts, townships, municipalities and special districts make up roughly 90,000 local government entities throughout the United States that require an audit by a CPA firm. Additionally, more than 1.5 million tax-exempt organizations in the U.S. also require an audit at year-end. Audits of these types of organizations require planning, testing, and reporting requirements to regulators who then oversee the compliance by the auditing firm. This can lead to higher levels of risk and more room for error.

Government and not-for-profit organizations depend on CPA firms that are experienced with the laws and regulations implemented and mandated by regulators for these types of special entities. However, for these entities, maintaining an understanding of the requirements and compliance procedures can be helpful when it comes time for their audit at year-end. Additionally, steps should be taken in order to keep the entity free from the possibility of fraud. Some ways this can be done is by maintaining segregation of duties, understanding and implementing internal controls, and providing inexperienced staff with the proper training necessary and sufficient knowledge to do the job. For governments and not-for-profits that rely on federal funding or donations, being aware of how fraud can occur is crucial for detecting insufficiencies and is beneficial for the future of the entity and its funding.

By Kimberly Harvin