Glossary
Audit & Controls

Management Letter

By: Alec Hollingsworth
Updated:  
June 16, 2025

DEFINITION:

A management letter is an auditor's report to management recommending improvements in internal controls and operational processes.
A management letter is a document prepared by an external auditor at the conclusion of an audit, addressed to an organization's management. It highlights internal control weaknesses, operational inefficiencies, or areas where financial practices and procedures can be improved. The management letter provides recommendations for strengthening controls, compliance, and overall financial management. While not required by law, it is considered a best practice in audit processes, serving as a valuable feedback tool for organizations to improve their operations and prevent future issues. The letter is separate from the auditor’s formal opinion on the financial statements, focusing instead on process enhancements and risk mitigation.

Key Takeaways

  • Highlights internal control weaknesses or inefficiencies
  • Offers actionable recommendations for improvement
  • Enhances transparency and accountability
  • Separate from the formal audit opinion

Why It Matters

It helps organizations identify and address risks, improve controls, and enhance transparency.

Real World Example

After a nonprofit organization undergoes its annual audit, the auditor provides a management letter to the executive director and board. The letter notes that while the financial statements are accurate, there are weaknesses in how cash donations are tracked and insufficient segregation of duties in payroll processing. The auditor recommends implementing dual sign-off for cash receipts and revising payroll approval workflows. By following these recommendations, the nonprofit strengthens its internal controls, reduces risk of errors or fraud, and demonstrates fiscal responsibility to donors and grantmakers.

How Aplos Helps

Aplos users can use insights from a management letter to strengthen internal controls and improve accounting processes. By addressing recommendations found in the letter, nonprofits using Aplos can ensure they maintain compliance, optimize resource allocation, and demonstrate accountability to stakeholders.
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Frequently Asked Questions

What is the purpose of a management letter?

A management letter provides management with the auditor’s findings and recommendations for improving internal controls and operational processes.

Is a management letter required for every audit?

No, management letters are not legally required but are considered a best practice and are commonly provided after audits.

How should nonprofits use a management letter?

Nonprofits should use the letter to identify weaknesses, implement recommended changes, and strengthen financial controls and accountability.

Is the management letter the same as the audit opinion?

No, the management letter is separate from the formal audit opinion and focuses on process improvements rather than financial statement accuracy.

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