Hot dog, it's time to issue an RFP for audit services, said no nonprofit ever. If you’re like most nonprofit audit committee members and executive directors, you cringe just a little when it comes time to solicit proposals for a new audit firm.
As an audit firm that responds to dozens of nonprofit requests for proposals (RFPs) every year, we’re here to offer advice (and a template!) on how to prepare your next audit RFP, what to include in it and suggestions for what you can leave out.
The process of requesting and reviewing proposals can be long and arduous.
Before you write and issue your next RFP, we recommend doing the following:
This is a case of less is more. When you send your audit RFP to 10+ firms, you very well might have a cattle call on your hands.
To prevent receiving proposals from non-qualified audit firms, research audit firms before any RFPs are issued. Make sure the firms you send RFPs to actually specialize in nonprofit auditing. If you can’t find “nonprofit auditing” on a firm’s website, then chances are good that they aren’t specialists (meaning they might not be up to speed with the latest nonprofit accounting and auditing rules).
We think receiving proposals from three or four pre-qualified audit firms is a good number, give or take.
The best way to whittle down your list of prospective firms is to ask your contacts for personal recommendations. Bankers, attorneys, board members, CFOs and executive directors of other nonprofits should be able to give you the names of reputable nonprofit audit firms. (These conversations might also result in the names of accounting firms to avoid.)
Often, it’s a member of your audit committee or board of directors who prepares and issues the RFP. That person might not have a financial or accounting background. We recommend having someone review it who’s knowledgeable of your organization’s financial processes and requirements before you send it to accounting firms. This will help ensure that terminology is correct, your scope of services is accurate and that you are asking for the correct level of assurance (audit vs review).
Demystifying the Audit: A Guide for Nonprofit Board Members and Executives is a resource for nonprofit stakeholders who don’t have a financial background.
Like so many types of businesses these days, audit firms are understaffed. The more you plan ahead, the more likely you are to get on the schedule of your top choice for a new audit firm.
Your audit committee and/or board of directors should meet to agree on priorities before issuing your RFP. Determine the factors that will weigh heavily into your decision-making process when reviewing proposals. Is it cost, ability to meet deadlines, responsiveness or experience with something specific (e.g., Single Audits, schools, private foundations, etc.)?
Knowing exactly what you are looking for will make reviewing proposals and interviewing prospective audit firms more productive and meaningful when you get to that point.
Not every nonprofit requires a financial statement audit. Some organizations can opt for a less expensive financial statement review. Talk with your banker or a trusted nonprofit auditor to clarify what level of assurance your organization needs. This can change pricing significantly.
Your organization’s stakeholders should determine when the audited financial statements need to be finalized. This date often hinges on the date of the board meeting at which the audit firm formally presents the audited financial statements to board members. You can then work backwards from this date and set deadlines for draft financial statements, fieldwork and other milestones. Better yet, after you hire your auditors, talk with them to collaborate on a timeline that works well for all parties.
This sounds obvious, but you’d be surprised how many RFPs we see that require information that’s totally irrelevant. Too often, RFPs are copied and pasted from another organization, then sent to audit firms. Make sure your RFP is well organized, specific to what you need and free of redundancy.
It’s great to start with a nonprofit audit RFP template , but tailor it for your organization. A well-written RFP not only helps you receive more tailored and relevant proposals, but also sets the foundation for a successful relationship with the selected audit firm. Take the time to review and proofread the RFP before issuing it to ensure clarity and accuracy.
Writing a good nonprofit audit RFP involves clear communication of your organization’s needs and expectations while providing prospective audit firms the necessary information to submit thorough proposals.
Here are some items to include in your nonprofit audit RFP:
Include a brief introduction to your nonprofit organization, its mission, size, and a brief overview of its activities and any related entities.
State the purpose of the audit and why you are seeking an independent audit firm.
Clearly define the scope of services you’re requesting. Mention the specific financial statements and related items that need to be audited, as well as whether you expect the audit firm to prepare your Form 990 or other tax related filings. If applicable, mention the requirement for a Single Audit under the Uniform Guidance if your organization receives federal funds. Include the fiscal year-end date for which the audit is required, and whether you are looking for a three-year commitment or something else.
State any relevant legal and regulatory requirements that the audit firm must adhere to, such as local, state and federal regulations. If your nonprofit receives grants or contracts, mention the need for compliance with grantor requirements.
Provide a timeline for the audit, including key milestones and the expected completion date. This will help the audit firms understand the time commitment required and align their resources accordingly.
Clearly outline the qualifications and experience you expect from the audit firm. State any specific expertise you may require (e.g., Single Audit experience).
State how proposals should be submitted. Most proposals are submitted electronically to a single point of contact at the nonprofit organization, who then shares the file with other decision makers.
Mention the deadline for submission, the preferred format (PDF, Word, etc.) and the email address where proposals should be sent.
Specify the information you expect the audit firms to include in their proposals. This might include:
Firm overview
Qualifications and experience of key engagement team members
Client references
Timeline for services
Risk areas the audit will focus on
Fees
What the transition to a new audit firm will look like
A copy of the firm’s latest peer review report
You might also want to ask the audit firms about their capacity to conduct remote audits if that’s something you wish to consider.
We suggest including these items when you issue your RFP. This will save you the time of fielding multiple requests from prospective audit firms once they receive your RFP. Auditors will always want to see your latest financial statements and Form 990 to get additional insight into your organization, beyond what a website or RFP can provide.
Provide contact details for any inquiries related to the RFP, such as a contact name, phone number and email address. Encourage the prospective audit firms to seek clarifications and ask questions if needed.
Set a deadline for when questions from audit firms must be submitted to you, then provide responses to all firms in a timely manner.
Just as we shared what to include in your nonprofit audit RFP, let’s look at some items you can forgo. These items, quite frankly, generally don’t add meaningful information to the proposals you receive.
Most RFPs we see ask for a detailed audit approach. When we’re asked for this, we certainly provide it, but as auditors, we don’t think RFPs need to require this.
Instead of asking audit firms to provide a detailed description of their audit approach, we think it’s much more important to ask which areas the firm will focus on during the audit. This will reveal whether the audit firm really understands your organization and its risk areas.
Now, if you’re still on the fence about whether to ask for the full audit approach, consider this comparison. When you choose a doctor for your knee replacement, do you ask them for a step-by-step description, in writing, of exactly how they will perform the knee replacement? Or, do you ask them about the big picture of the operation, such as how long it will take, what are the risks and what is the recovery period like? If we’re being honest, we choose the doctor because we are confident in their skills, experience and training, and because perhaps your sister had a great experience with the same kind of surgery under that doctor’s care. A seasoned nonprofit auditor is really no different. They know how the perform the audit.
Instead, we encourage you to focus on evaluating each auditor’s client references, experience and communication skills.
Some RFPs ask audit firms to disclose information on the biggest client(s) they’ve lost in recent years. While CPA firms seek permission to share the contact information for existing clients for reference purposes, firms cannot disclose details about past clients. Client confidentiality is huge in the accounting profession. We simply cannot name former clients and disclose why they are no longer clients.
Instead, we encourage you to ask for (and check) client references. Ask those clients why they have stayed with the audit firm year after year.
RFPs typically ask for names and bios of the audit firm’s engagement team, including partners, managers and staff accountants.
While staff accountants play an important role in your audit, we don’t think it’s necessary to ask for their names and bios in the proposal. It’s likely that an audit firm won’t necessarily know which staff accountants will be available at the time of submitting a proposal. If the firm you select truly specializes in nonprofit audits, they will assign staff auditors who have the right experience for your engagement.
Instead, ask for the names and bios of the partner and audit manager who will lead your engagement team. If you aren’t able to meet with the partner or audit manager prior to RFP submission, get to know them with a phone or video call after they submit the proposal.
You’ve issued a strong RFP and received proposals from qualified nonprofit auditors. You’re seeing competitive fees, strong nonprofit experience and their client references are glowing. You’ve got a tough decision ahead of you.
What about chemistry? Have you actually talked with each prospective audit firm? Even if you don’t call in your top choices for a formal presentation, a brief phone conversation or Zoom call can reveal whether you are a potential fit for each other.
We enjoy talking with a nonprofit’s point of contact during the proposal process. A person-to-person conversation often helps determine whether we are a good fit for them, and whether they are a good fit for us as a firm. We encourage you to be open to these conversations. Consider whether you have good chemistry, and whether you learned something new and insightful from talking with them.
Calling each audit firm’s client references is time consuming, but we can’t stress how important this step is. You will receive no better account of what it’s like to work with an audit firm than by talking to their clients. Really listen to what each firm’s clients have to say about their experience. Are the auditors easy to work with? Do they know nonprofit accounting and auditing inside and out? Do they return calls and emails promptly? What keeps them coming back as a client from year to year? Have they learned new things from their audit firm?
Likewise, search the internet for online reviews that clients have written, including Google reviews.
For help with your nonprofit audit, contact us online or call 800.899.4623.