Nonprofit Post Audit Guide

May 8, 2018

After the audit, the audit committee, executive director, and senior financial staff are responsible for reviewing the draft audit report, asking questions about the auditors’ findings, and evaluating any recommendations before they are presented to the board in the final report.

Client representation “letter to management” aka “management letter” serves to identify areas of operations or procedures that the nonprofit may want to improve or redesign.


  • Sometimes known as the management letter
  • Chance for auditors to point out best practices
  • Identifies areas of operations that need improvement

The audit committee or staff often asks to review a draft of the management letter just to make sure that the letter is accurate before the final version goes to the board of directors since the board is likely to be concerned about any deficiencies or even less serious concerns that the auditors identify in the letter. The accounting standards require the auditors to report to the board any “material weaknesses” and significant deficiencies

Issues that auditors may point out in the client representation letter typically fall into two categories:

1 – Material internal control issues:

  • weaknesses in the processes, systems, and internal procedures that help to ensure that all financial transactions are recorded properly.
  • Strong internal controls (e.g., early detection and correction) serve to highlight errors and irregularities in financial operations. Correcting the issues will provide additional integrity to the financial statements and may help to reduce audit costs in the future.
  • The auditors will point out any material internal control issues in the management letter so that the nonprofit can address those issues before the next audit.

2 – Operating inefficiencies:

  • Identifies issues that are, or could become red flags, and propose improvements to resolve problems and strengthen operations. Sometimes it takes an independent or outsider’s eye to identify inefficiencies that could be improved or new technologies that will improve operations.
  • Points out operating procedures that are inefficient or unnecessary.

What is the role of the audit committee after the audit?

  • Insights shared by the auditors should be presented formally and in-person by the auditor to the board of directors or the audit committee at the conclusion of the audit process.
  • Management and the audit committee can also use the opportunity of an annual audit to enlist the support of the auditor to undertake new initiatives. If the auditor agrees that initiatives suggested by management may strengthen operations, the auditor may choose to include management’s ideas in the management letter
  • Management may identify areas for the auditor that need further, independent corroboration in order for the board to fully appreciate the ramifications of their decisions.

Questions for the audit committee to discuss with the auditors when reviewing the draft of the management letter and the audited financial statements:

  • Did the auditors note any limitations on the scope or nature of the audit procedures?
  • What factors did the auditors consider when determining the scope of the audit?
  • Did the staff cooperate with the auditors? Was there a healthy flow of information between the staff and auditors?
  • Were there any legal matters that would impact the organization’s financial statements?
  • Were there any conflicts of interest between the auditors and the organization? If so, how were they handled?
  • Did the auditors find that the organization’s internal financial controls were adequate?
  • Did the auditors provide a written opinion about the quality and acceptability of the nonprofit’s accounting principles?
  • Were there any significant changes to the audit plan that occurred during the course of the audit?
  • Were there any serious disputes or difficulties encountered by the auditors during the audit?
  • If there are any “material” or “serious” recommendations, ask the auditors to explain in detail any concerns. The auditors will usually provide such recommendations to the committee in a “letter management.”
  • The committee should review the executive director’s comments in response to the letter and receive follow-up reports on actions taken.

Questions for the audit committee to discuss with the executive director after the audit:

  • Did the auditors perform their work efficiently and effectively? Are you satisfied with the scope, nature, and timing of the audit?
  • Did the auditors work with the organization to ensure complete coverage and effective use of resources without redundant efforts?
  • Did the committee and executive director review the fee arrangement between the organization and the auditors?
  • Was there any documentation that the auditors requested that the staff could not produce?
  • Were there any significant changes to the audit plan that occurred during the course of the audit?
  • Were there any serious disputes or difficulties encountered by the staff during the audit?
  • Does the staff believe that the auditors were diligent in their review?
  • Was the auditors’ presence on site during fieldwork disruptive?
  • Are you satisfied that the external auditors remain independent of the organization in spite of any audit-related, or non-audit services the auditors provide to the organization?

Release of the auditor’s report to management

After all questions have been asked and answered, including confirmations of anything that the auditors needed to check, the final step is that the auditors will sign and date the report, and deliver it to the board of directors with a client representation letter, the same date as the audit report.

Presentation of the audit report to the board of directors 

During the meeting that the board of directors receives the independent audit, the appropriate action for the agenda is for the board of directors to “accept” the auditor’s report and letter to management, rather than “approve” them. This is because the board’s action in connection with the audit is literally to receive and “accept” the auditor’s independent report. The findings in the report are not subject to change by the board after the report is submitted to the board, consequently, the board’s action is not to approve/disapprove, but to accept the report. However, discussion by the full board of the audit report should be encouraged so that board members are familiar with the report’s findings. Generally, all board members receive a copy of the independent audit and management letter in their board materials for the meeting during which the report is accepted.