The goal of a management audit is to identify your internal blind spots - the risks the organization is incurring due to gaps in day-to-day operations. It's more commonly practiced within the corporate world, but non-profits are especially at risk for unknown weaknesses. Passionate, well-meaning people found beautifully optimistic nonprofits everyday. There is a notion that a running a "charity" will be nothing like running a business; nowhere near as difficult.
While most fail quickly, many nonprofits make it past infancy to the point of acquiring space, allocating a stable salary for the founder-turned-Executive Director, and hiring a few staff members.
This is the next major fail point.
The compliance requirements, reporting, paperwork, payroll taxes, liability insurance, property tax exemption declarations, sales tax reimbursement requests, charitable solicitation permits, business licenses, accounting systems, spreadsheets, meetings, and much more aren't what the founder envisioned.
Without experience, it's nearly impossible to recognize which puzzle pieces are missing and which will cause you the greatest grief. This is where the management audit comes in.
A professional management audit should be conducted by a consulting firm so as to provide objectivity and hopefully some resource-saving expertise. But organizations of all sizes should engage in regular, internal management reviews to continuously build an infrastructure that is sustainable and protect your 501c3 status.
To help you get started, here are the major areas I might review during an audit, depending on the goals of the organization:
Charitable Purpose By-Laws Mission Vision Strategic Focus Annual Plan Long-term Strategic Plan Impact (Outcomes)
Regulatory & Compliance
501(c)(3) Status Charitable Solicitations Permit Business License(s) Independent Financial Audits (Voluntary or Required) Annual IRS 990 Submission Workers Comp Unemployment Insurance General Liability Insurance Directors & Officers Liability Insurance Policy & Procedure Document Retention Policy & Management Industry-Specific Regulatory Requirements
Executive Leadership Team
CEO / Executive Director CFO / Financial Director Additional Leadership Roles Team Structure & Decision Making Process Development & Coaching Board Chair Involvement Succession Plans
Zero-Based Annual Operating Budget with Board Approval Frequency of Financial Reporting to the Board Financial Controls in Writing and in Action Bookkeeping Responsibilities Accounting Software / Firm In-Kind Donation Tracking Restricted Funds Management Diversification of Revenue Earned Income Activities & Unrelated Business Income Compliance Annual Financial Review/Audit 990 & Financial Review/Audit Board Review & Approval Overhead Percentage & Sustainability Cash Reserves Physical Assets Security
Board of Directors
Recruitment & Member Induction Process Director Agreement / Code of Conduct Director Terms Director Compensation Conflicts of Interest Policy & Annual Disclosures Meeting Minutes Number of Quorum Meetings Annually Committees Level of Attendance & Contribution Director Onboarding / Ongoing Training Board Chair Succession Plan
Employees - Open Position Postings - Equal Employment Opportunity (if covered entity) - Employment Applications - IRS W-4 - I-9 - E-Verify (15+ Employees) - Regular Supervision - Documented, Regular Performance Reviews - Timesheets - Any Required Training Documentation - Labor Law Compliance Posters
Independent Contractors - Categorized Correctly - Current Contracts - Business License - Professional License(s) - Invoices
Volunteer Applications Volunteer Hours Reporting Background Checks (Voluntary or Required) Confidentiality Agreements Onboarding Process Ongoing Internal Training Opportunities (Voluntary or Required) Disciplinary Action Policy & Documentation Hard & Electronic HR Files Security
Outreach & Development
Strategic Development Plan Development Calendar Website Social Media Grant Proposals & Follow-Up Special Events Major Donors Individual Donors & Stewardship Promotional Materials Outreach Activities Community Engagement Industry Network PR
IT Equipment Phone System Software & Technology Email System Shared Calendar System Accessibility & Security Internet Access Policy
Space, Equipment & Supplies
Space Ownership / Lease Office & Staff Supplies Staff Break Areas
*Disclaimer: I primarily work with nonprofits located in my own state. Some of the identified requirements or permits are exclusive to Utah.