Transparency in financial activities and compliance with legal requirements are critical factors for successful development of a nonprofit organization. Conducting an external audit for an NGO helps confirm the organization’s accountability in the use of financial resources, increases trust among partners and donors, and prevents potential risks.
An external auditor provides an objective analysis of the NGO’s financial statements and verifies the organization’s compliance with legal requirements. The high competence and experience of specialists from an auditing firm also provide the client with practical advice on improving management processes within the organization.
Why an NGO Needs an External Auditor
Increasing donor and partner trust
A positive independent audit opinion confirms the reliability of financial statements and the effective use of grant funds. This enables the organization to attract more financial resources and establish long-term partnerships. Most often, external audits are required by international funds, intergovernmental organizations, and international cooperation agencies such as the European Commission, the UN, GIZ, and others, as well as private donors who want assurance of transparent use of their contributions.
Preventing financial risks and errors
Financial errors often arise due to “human factors,” insufficient knowledge of accounting standards and legislation, or incorrect bookkeeping. Choosing and engaging an external auditor helps identify such shortcomings, minimize the risks of fines, and prevent financial losses.
Fulfilling grant agreement requirements
An audit of nonprofit organizations to confirm reporting and verify the use of project funds is often an obligation set out in grant agreements. Without fulfilling this requirement, a donor cannot consider cooperation with the NGO successful.
Criteria for Choosing an External Auditor for an NGO
Recommendations for selecting an external auditor include assessing the company’s experience, registration in the Auditor Register, the presence of auditor certificates, international qualifications such as CAP, CIPA, ACCA, or others, experience working with international and local donor organizations, market reputation, and whether the audit methodology aligns with NGO specifics.
Experience working with NGOs
The specifics of financial accounting in nonprofit organizations differ from commercial companies. It is important to choose an auditing firm with experience working with NGOs, knowledge of their operations, and relevant legal requirements — such as UHY Prostir. How to choose an auditor for a civic organization depends on the company’s experience and reputation. UHY Prostir has been working with NGOs for over 20 years and has experience collaborating with the vast majority of international donor organizations represented in Ukraine.
Qualifications and licenses
The presence of certificates, licenses, and official accreditation are mandatory criteria when selecting an auditor. These guarantee independence, professionalism, and compliance with international auditing standards.
Reputation
Before selecting a specialist, it is advisable to review client feedback, and check whether the company is a member of professional bodies such as the Audit Chamber of Ukraine or international auditing associations. Selection criteria also include analyzing the auditor’s past experience.
Audit methodology
Which standards does the auditor apply? How is the audit carried out? Are advanced analysis methods used? All these questions should be clarified before starting cooperation.
Cost of services
Although the budget is an important factor, an auditor should not be chosen solely on the basis of the lowest price. A low price for external auditing of NGOs may mean insufficiently thorough verification or superficial analysis of financial documents. Service cost should be compared with the auditor’s professionalism.
What NGOs Should Know Before the Audit
Preparation for the audit
- Assign a team responsible for communication with the auditor.
- Prepare necessary documents: financial statements, statutory documents, internal policies, contracts, primary accounting records, management expenditure reports, etc.
Defining expectations
Before the audit begins, the organization should clearly understand its objectives and expected outcomes. These may include confirming compliance of financial reporting with accounting and legal requirements and/or grant conditions, analyzing transparency of resource use, or identifying financial and accounting risks. Defining these goals allows auditors to focus on key issues and provide objective findings and useful recommendations for the NGO’s financial system.
Advantages of Working with a Professional Auditing Firm
Cooperation with an experienced auditor such as UHY Prostir ensures a comprehensive approach to analyzing an NGO’s financial activities. Beyond confirming report accuracy, a professional audit contributes to improving management processes and internal controls. This helps the organization increase reliability, minimize risks, and meet donor and regulatory requirements.
To avoid risks and receive qualified services, contact our professionals at UHY-Prostir by filling out the contact form on our website, calling the phone number provided, or sending us an email.
Mistakes to Avoid When Choosing an Auditor
Choosing an auditor based only on price, without checking certification, NGO experience, or donor requirements, can lead to rejection of the report by the donor. It is also important to clarify what methods the auditor applies, whether they test controls, analyze risks, and provide recommendations for improving financial management. Attention should also be paid to the criteria for evaluating auditors for NGOs and the qualifications and experience of the specialists conducting the audit. Insufficient expertise may result in missing significant financial risks.
