Audit Readiness for Private Foundations: From Compliance to Confidence

For many affluent real estate families, a private foundation is a meaningful way to give back, formalize philanthropy, and create a long-lasting legacy. But with that opportunity comes a responsibility to uphold strong governance, maintain transparency, and comply with applicable rules and regulations.

One powerful way to reinforce this commitment, and to build trust with stakeholders, is by undergoing a financial statement audit. A financial statement audit can be a strategic asset — offering insights that can strengthen governance, potentially improve operations, and better support the long-term sustainability of a private foundation.

When is an audit required or recommended?

Private foundations may be required, or choose, to undergo an audit under the following circumstances:

State-level requirements

Certain states mandate audits once a private foundation exceeds a certain revenue or asset threshold. For example, California requires an audit for nonprofits with gross receipts over $2 million.

Grantmaking or fundraising activity

Foundations that solicit public funds or make significant grants may face donor or grantee expectations for audited financial statements.

Board governance

Many high-net-worth families voluntarily engage an audit to support transparency and promote family accountability across generations.

Regulatory adherence

While all private foundations must file an IRS Form 990-PF, an independent audit provides added assurance that financial data is reasonably accurate and that federal and state compliance reporting requirements were met.

How to stay audit-ready and mission-aligned

Maintain robust documentation

Clear records, especially around grant approvals, investment decisions, and related-party transactions, can streamline the audit process. Maintain a sound internal control system.

Your foundation should implement independent review procedures of disbursements, and monthly financial information. Be certain all cash-to-accrual adjustments are made, including fair value adjustments of investments.

Separate business and philanthropic activity

Self-dealing transactions are prohibited. Avoid financial or operational overlap between your family’s business interests and the private foundation. Independent governance structures and conflict-of-interest policies are essential.

Align investment policy with mission

Foundations with significant endowments should make certain their investment strategies support the charitable mission and comply with federal and state rules on jeopardizing investments.

Conduct regular board reviews

Periodic board meetings that include financial updates, compliance reviews, and strategic planning can help keep the foundation focused on its mission and ready for audit.

Choose advisors with nonprofit experience

Your foundation can benefit from best practices by working with professionals who understand the nuances of IRS Form 990-PF, excise taxes, self-dealing rules, and the distinctive considerations of philanthropic entities.

How CLA can help with foundation audits

An audit shouldn’t be viewed as a burden or regulatory hurdle, but rather as a strategic tool that can enhance your foundation’s credibility, governance, and long-term philanthropic impact. If your family’s foundation has grown in size or complexity, now may be the right time to evaluate whether an audit, or a financial review, is appropriate.

Our assurance team specializes in serving private foundations formed by families in the philanthropic community. We’d be happy to assess your foundation’s audit readiness or share insights on structuring your foundation for generational success.

Contact us

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