Many Dallas nonprofit leaders feel a knot in their stomach the first time a board member, donor, or grantor asks, “Do we have audited financials?” In that moment, it can feel like there are only two options. Either spend money the organization does not really have on a full audit, or hope that current bookkeeping and an annual tax filing will be enough.
In reality, there is a middle ground that many tax-exempt organizations in Dallas use to balance credibility, compliance, and cost. A nonprofit financial review can give your board and funders meaningful assurance about your numbers without the time and expense of a full audit. When you understand what a review is, and how it fits into your governance responsibilities, it becomes a practical tool instead of a vague requirement.
At Perliski Law Group, we work with Texas nonprofits on formation, governance, and IRS compliance. We regularly help executive directors, pastors, and board treasurers decide when a financial review makes sense, how it differs from an audit, and how to reflect those choices in bylaws and policies. In this guide, we share that perspective so your Dallas nonprofit can use financial reviews to protect your mission and tax-exempt status.
What A Nonprofit Financial Review Really Is For Dallas Organizations
A nonprofit financial review is an engagement where an independent certified public accountant looks at your financial statements and key underlying records, then issues a short report offering limited assurance that the statements make sense. The CPA typically asks questions of management, performs analytical procedures, and compares current results to prior periods or budgets. The goal is to see whether the financial statements appear reasonable, based on the information provided.
This is different from what your internal bookkeeper or volunteer treasurer does. A financial review is performed by an outside CPA firm that is separate from your staff and board. The independence of that CPA, and the structured procedures used in a review, are what give the resulting report weight with funders, lenders, and your own board. The CPA does not look at every transaction, but does enough work to raise red flags if the numbers are inconsistent or unsupported.
For a Dallas nonprofit, a review often fits into a larger picture that includes monthly financial reports to the board, an annual Form 990 filing, and basic internal controls. It does not replace these items. Instead, the review gives your board another layer of comfort that the financial information they rely on to make decisions is reasonably stated. Because our work at Perliski Law Group focuses on Texas nonprofit law and IRS compliance, we pay close attention to how these review reports interact with your governance documents and your tax filings.
Financial Review vs. Audit vs. Compilation For Dallas Nonprofits
Many nonprofit leaders use the words “review” and “audit” interchangeably, which creates confusion and unnecessary anxiety. In practice, reviews, audits, and compilations represent three different levels of service that a CPA can provide. Understanding the differences helps your Dallas nonprofit choose the right level of scrutiny for your situation.
In a compilation, a CPA takes financial information provided by management and presents it in the form of financial statements. There is no assurance that the numbers are correct. The CPA is not required to ask questions, perform analytical procedures, or test anything. For that reason, compilations usually have limited value for governance, and many serious funders or lenders are reluctant to rely on them alone.
During a financial review, the CPA goes further. They make inquiries of management and perform analytical procedures, such as comparing ratios, trend lines, and budget-to-actual variances. They look for inconsistencies or items that do not add up and may ask for additional supporting information where needed. The review report provides limited assurance that the financial statements are free of material misstatement. For many small to mid-sized Dallas nonprofits, this level of assurance can be enough to support internal governance and some funder expectations.
An audit is the most intensive option. In an audit, the CPA tests samples of transactions, evaluates internal controls, confirms balances with third parties when appropriate, and gathers detailed evidence. At the end, the auditor provides reasonable assurance that the financial statements are free of material misstatement. Audits are time-consuming and more costly, and some large institutional funders or lenders insist on them once you reach a certain size or complexity.
Over the years, we have seen Texas nonprofits struggle because they felt pushed into an audit when a review would have been a better fit. We have also seen organizations assume that a review is “basically an audit,” then rely on it more heavily than the CPA intended. At Perliski Law Group, we help boards in Dallas look at their revenue mix, grant requirements, and risk profile to decide where on this continuum they belong, then adjust their bylaws and policies so expectations are clear.
When A Financial Review Makes Sense For Your Dallas Nonprofit
Not every Dallas nonprofit needs an annual audit. For many organizations, especially those with modest budgets and limited staff, a financial review provides a realistic and responsible level of oversight. The challenge is knowing when a review makes sense, and when you may want to move up or down the ladder.
One common trigger for a review is growth. As your annual budget moves into the mid six-figure range, the number of transactions increases, you may add paid staff, and you are likely managing more restricted gifts and program expenses. At that point, boards often begin to feel that internal reports alone are not enough. A review can give comfort that the numbers underlying those board packets are reasonable, without the time and disruption of a full audit.
Funder expectations are another major driver. Some private foundations and corporate donors in the Dallas area accept reviewed financial statements for mid-sized grants, even if they require audits for larger awards. A bank considering a line of credit may ask for a review as part of its underwriting. Understanding what your key funders and lenders look for helps you choose the right level of assurance and justify the cost to your board.
Risk is equally important. If your nonprofit has recently experienced rapid growth, a change in financial leadership, or concerns about internal controls, a review can be a prudent step. We work with churches, charities, and social clubs across Texas that use reviews in these transition periods. The outside CPA’s questions and analytic procedures often highlight weaknesses that might not show up in normal board reports, giving you a chance to fix them before they escalate.
How Financial Reviews Support IRS Compliance And Texas Governance Duties
Financial reviews are not only about satisfying donors or preparing for loans. They directly support your legal obligations as a Texas nonprofit and your ongoing tax-exempt compliance. For board members in Dallas, especially those serving as treasurer or on the finance committee, this connection is critical.
Under Texas law, nonprofit directors have a fiduciary duty of care and loyalty to the organization. The duty of care means you must be reasonably informed, ask questions, and make decisions in good faith. Reviewing clear financial information, and taking steps to verify that information periodically, is a key part of fulfilling that duty. A financial review by an independent CPA gives your board another data point that the numbers used for budgeting, strategy, and major commitments are reliable.
Reviews also support federal tax compliance. Your annual Form 990 relies on accurate financial data. If your underlying records or classifications are incorrect, your filings may send the wrong message to the IRS or to the public, since many donors and watchdog organizations look at 990s. A review can help identify inconsistencies between your internal accounting and how information should be presented externally, which helps avoid misunderstandings that could raise questions about your tax-exempt status.
In practice, reviews often surface issues that have legal or governance implications. For example, a CPA may question how you track donor-restricted funds and whether those restrictions are being honored. They may notice that significant contracts or major purchases lack documentation of board approval. Because Perliski Law Group concentrates on Texas nonprofit formation, IRS rules, and tax-exempt regulations, we frequently step in after a review to help boards revise policies, clarify approval processes, and document donor restrictions so that good accounting practices are backed by sound legal structures.
What To Expect During A Nonprofit Financial Review
For many Dallas nonprofits, the idea of a financial review feels intimidating simply because the process is unfamiliar. In reality, most reviews follow a fairly predictable pattern. Knowing what to expect helps you plan, prepare your team, and set realistic timelines with your CPA and your board.
The process typically starts with an engagement letter from the CPA firm. This document outlines the scope of the review, the period covered, the responsibilities of management versus the CPA, and the fee structure. Once that is in place, the CPA requests key documents, which may include your trial balance, general ledger, bank statements and reconciliations, budget-to-actual reports, grant agreements, and supporting schedules for key balances such as accounts receivable, accounts payable, and restricted net assets.
After receiving the initial documents, the CPA begins performing analytical procedures. They compare current year results to prior years, look at trends in revenue and expenses, and examine budget variances. When something looks unusual, they ask management to explain the variance or provide additional documentation. They may also ask questions about internal controls, such as who approves disbursements, how deposits are recorded, and how access to bank accounts is managed.
At the end of the engagement, the CPA issues a review report. This is usually a short letter attached to your financial statements. The letter states that they performed a review, describes the nature of that work, and provides limited assurance that the financial statements are free from material misstatement. Your board and finance committee should receive and read this report, along with the accompanying financial statements.
We often work alongside outside CPAs during this process for our Dallas nonprofit clients. Our role is not to redo the CPA’s work, but to help management and the board understand what the review findings mean in light of IRS expectations, donor restrictions, and Texas nonprofit law. That coordination can be especially valuable during your first review, when many questions arise about how to respond to suggestions or concerns raised by the CPA.
Using Financial Reviews To Strengthen Your Board’s Oversight
The real value of a nonprofit financial review comes after the report is delivered. Boards that treat reviews as a one-time hurdle miss the opportunity to use them as ongoing governance tools. For Dallas nonprofits, integrating reviews into regular board and committee work can significantly improve oversight and reduce risk.
A good starting point is how the review report is presented and discussed. The finance committee should receive the report in advance, meet with management to walk through key points, and prepare a summary for the full board. During the board meeting, directors should have time to ask questions about the CPA’s comments, understand any recommended changes, and agree on specific follow-up actions. These discussions should be reflected in the minutes to document that the board took the review seriously.
Next, boards can use review findings to update internal controls and financial policies. If the CPA notes that bank reconciliations are not being reviewed, or that documentation for restricted gifts is inconsistent, the board can direct management to propose new procedures. These might include dual signatures on certain checks, standardized donor acknowledgment letters, or clearer guidelines for expense approvals. Each change strengthens the financial backbone of the organization.
Financial reviews can also inform how information is reported to the board throughout the year. If the review uncovered confusion around how certain expenses are categorized or how restricted funds are tracked, the finance committee may ask for revised formats for monthly or quarterly reports. At Perliski Law Group, we often help nonprofits in Texas translate review recommendations into updated policies, committee charters, and reporting templates so that the improvements become part of the organization’s ongoing governance culture.
Common Missteps Dallas Nonprofits Make With Financial Reviews
Even well-intentioned boards can stumble when they first incorporate financial reviews into their governance toolkit. Recognizing common missteps helps your Dallas nonprofit avoid them and get more value from the time and money invested in a review.
One frequent issue is treating a review as if it were an audit. Boards sometimes assume that because an outside CPA has looked at the financial statements, every error or risk must have been identified. In reality, a review involves inquiries and analytical procedures, not detailed testing of every area. If directors rely on a review as full assurance, they may let their own oversight slip. The better approach is to see the review as one tool among several, alongside regular financial reports, internal controls, and active board engagement.
Another misstep is handling reviews as purely accounting decisions without checking your governance documents. We often see bylaws and finance policies that require annual audits or that never mention reviews at all. When practice and policy do not match, confusion follows, especially during leadership transitions or when funders ask for documentation. Aligning your bylaws and board policies with your actual approach to reviews and audits makes expectations clear and defensible.
Small and faith-based nonprofits in Dallas sometimes make a different mistake. They assume that because the board knows the treasurer personally, or because the community is tight-knit, formal financial reviews are unnecessary. Trust is important, but it is not a substitute for oversight. A simple review can often catch issues early, long before they become public problems. Framing a review as protection for the mission and for the individuals serving on the board helps overcome resistance.
At Perliski Law Group, we have seen these patterns repeat over many years of working with Texas nonprofits. By addressing them directly and setting up a realistic review schedule, you can avoid crises, build donor confidence, and show regulators that your board takes its responsibilities seriously.
When To Involve Legal Counsel In Your Financial Review Strategy
A CPA handles the technical accounting work involved in a financial review, but that is only part of the picture. Legal counsel plays a different role, focused on how reviews fit into your nonprofit’s governance framework, contracts, and tax-exempt obligations. Knowing when to bring in a law firm like Perliski Law Group can save your Dallas organization time and prevent costly missteps.
One key moment is when drafting or revising bylaws and financial policies. If those documents mention audits or reviews, they need to reflect what your board actually intends to do and what your funders or lenders expect. We help nonprofits decide whether to require an annual audit, allow flexibility between audits and reviews based on size, or set internal thresholds that trigger a higher level of scrutiny. These decisions should be made deliberately and written clearly so future boards are not boxed in or left guessing.
Legal input is also valuable when interpreting review findings that touch on donor restrictions, conflicts of interest, or board approval processes. For example, if a CPA raises concerns about how restricted gifts are tracked or spent, there may be legal questions about complying with donor intent. Similarly, if significant transactions lack clear board approval, the board may need to shore up its documentation practices to meet its fiduciary duties. Our familiarity with IRS expectations and Texas nonprofit law helps boards respond appropriately to these kinds of flags.
Many Dallas nonprofits benefit from having a long-term legal partner who understands their mission, growth plans, and budget constraints. At Perliski Law Group, we offer flat fee packages and discounted rates for churches, charities, and other nonprofits. This allows boards to plan for the legal costs of updating governance documents, reviewing funder agreements that reference audits or reviews, and coordinating with their CPA when financial questions arise, without fearing unpredictable bills.
Plan Your Nonprofit Financial Review Strategy With Confidence
A nonprofit financial review can be more than a line item on a grant application. For Dallas organizations that use it intentionally, a review is a practical way to strengthen board oversight, build funder confidence, and support accurate reporting to the IRS, all while keeping costs manageable. The key is understanding where reviews fit along the spectrum of financial scrutiny, and aligning your governance documents and board practices with that choice.
If your board is debating whether you need an audit, a review, or something else, or if you have received review findings that raise legal or governance questions, we invite you to talk with us. Perliski Law Group focuses on Texas nonprofits and can help you evaluate your options, update your bylaws and policies, and coordinate with your CPA so your financial review strategy truly supports your mission.
Call (214) 865-7542 to discuss how a tailored financial review approach can protect your Dallas nonprofit and its tax-exempt status.