In today’s world, non-governmental organizations (NGOs) play an important role in addressing social, environmental, human rights, humanitarian, and many other issues. Effective financial management and accountability are among the key factors of their successful activity. That’s why independent audits are critically important for NGOs: they ensure transparency in the use of resources, strengthen donor and partner trust, and as a result, contribute to the long-term financial sustainability of the organization.
If you are faced with the question of how to undergo an audit of a grant project or an audit of general-purpose financial statements (for obtaining funding for a new project), it’s worth preparing in advance and considering all key aspects of the review. In particular, you can submit a request on the UHY Prostir website to receive a consultation from our specialists. This can be done in the “Contacts” section, by calling the specified phone number, or by sending an email.
Main Purpose of an NGO Audit
An audit is aimed at:
- Increasing accountability to donors, partners, and society;
- Confirming the transparency of the organization’s financial activities;
- Building trust with grantors, beneficiaries, and government institutions.
There are two main types of audits for NGOs:
- Audit of general-purpose financial statements;
- Audit of project financial statements.
Both types have their specific features and play a key role in ensuring the reliability of NGO operations.
Audit of General-Purpose Financial Statements of NGOs: What It Is
This is a comprehensive review of the organization’s activities to assess the reliability of its financial reporting and the compliance of its business and financial operations with legal regulations and accounting standards.
Main requirements and standards
Audits are based on International Standards on Auditing (ISA) and either national (Ukrainian NP(S)A) or international (IFRS) accounting standards. Specialists review:
- Bookkeeping practices;
- Financial resource management;
- Internal control measures;
- Accuracy of approaches used in preparing financial statements;
- Compliance with laws and donor requirements.
An important aspect is the verification of proper documentation, which helps ensure effective cost control.
Audit of Project Financial Statements: Specifics and Objectives
An audit of project financial statements is a review of activities and transactions within a specific project or grant to assess compliance with the grant agreement, budget, and donor requirements. It verifies that grant funds were used for planned activities aimed at achieving project goals and identifies potential financial risks.
Key objectives:
- Check compliance of actual expenses with the planned budget;
- Verify supporting documents and their link to the audited project;
- Assess the effectiveness of fund and resource use;
- Confirm adherence to other conditions of targeted funding.
One of the crucial aspects is the audit of grant fund use, which helps evaluate whether the targeted financing was applied correctly and effectively allocated.
Donors often require such audits either at the grant awarding stage, during project implementation, or after completion if there are doubts about financial transparency. Meeting these standards and successfully passing project audits significantly increases an NGO’s chances of securing future funding.
Key Differences Between General-Purpose and Project Financial Audits
| Criterion | General-Purpose Financial Audit | Project Financial Audit |
| Object of review | Entire organization | Specific project |
| Frequency | Annually | After project completion / stages |
| Requirement | Internal or donor-driven | Donor requirement |
| Reporting | General-purpose financial statements | Project financial statements submitted to donors |
Why Both Types of Audits Are Important
Undergoing both general-purpose and project financial audits not only enhances organizational transparency but also confirms compliance with donor conditions when using grants, and improves the level of internal control. This reduces the risk of common mistakes in grant fund management that may lead to financial sanctions or loss of donor trust and funding.
Who Can Audit NGOs
Audits must be conducted by officially registered audit firms/auditors listed in the Audit Register and operating in compliance with ISA.
When choosing an auditor, consider:
- Relevant certifications, licenses, and accreditation;
- Experience auditing NGOs;
- Experience with donor organizations;
- Reputation and references.
Donor requirements may vary depending on the donor type and funding amount, so NGOs should carefully review these conditions.
How to Prepare for an Audit
Preparation should begin in advance. Collect all necessary documents: financial statements, accounting records, internal policies, donor contracts, and primary documents. Documentation plays a decisive role.
Additionally:
- Comply with donor conditions during project implementation;
- Follow the approved budget;
- Coordinate any deviations with the donor before the audit.
This will help avoid unnecessary auditor questions.
Consequences of Non-Compliance
Ignoring or poorly preparing for an audit can lead to inefficient resource use, loss of grants, and donor trust. Other negative outcomes include delays in donor reporting, which affect future funding opportunities.
Audits are not just a donor requirement, but also a tool for ensuring reliable control and sustainable NGO development. Regular financial and project audits provide independent confirmation of compliance with regulations, internal policies, and donor requirements, strengthen control over grant fund use, and help NGOs maintain partner trust.
