Most states do not require private foundations to do audits. As with other good governance or policy issues, often it is up to each individual foundation to decide the approach that works best for them. Check your state laws.
A few guidelines to keep in mind:
- It may be prudent to invest in an audit every few years, depending on the size of the foundation and the complexity of its operations and grantmaking. For example, larger foundations that employ staff and spend resources on items such as consultants, commissioning research, convening, visiting grantees beyond the immediate service area, and many other expenses the IRS allows—these foundations have additional incentive to do audits every few years.
- As a rough guideline: Many foundations over $50 million in assets who employ staff do have an audit.
- Each foundation board has a different perspective on public perception. If a board prioritizes public perception and transparency, it may have more incentive to do audits every few years.
- Cost is a factor—audits can be expensive, and some boards prefer spending this money on the philanthropic mission and grantmaking.
- Some trustees require the organizations they serve to have audits, as personal preference.
- Certain D/O insurance providers mandate an audit, as may certain banks when the foundation has a line of credit with that bank.
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