Nonprofit Audit Requirements: When and How to Get an Audit

Do Nonprofits Need an Audit?

Not all nonprofits need an audit. Whether your organization requires one depends on federal law, state law, funder requirements, and your own governance decisions. This guide explains exactly when audits are required and how to manage the process efficiently.

When Audits Are Required

Federal Single Audit (Uniform Guidance)

Nonprofits that spend $750,000 or more in federal awards in a single fiscal year must undergo a Single Audit under 2 CFR Part 200 (Uniform Guidance). This is the most common federal audit trigger.

Threshold: $750,000 in federal expenditures (not revenue — actual spending of federal dollars)

Scope: Examines both financial statements and compliance with federal program requirements

Deadline: Due within 9 months after the end of the fiscal year audited

Cost: Significantly more expensive than a financial statement audit due to the compliance component

Filing: Submitted to the Federal Audit Clearinghouse

State Audit Requirements

Each state sets its own audit requirements for nonprofits soliciting contributions. Thresholds vary widely:

Always verify current thresholds with your state's charitable registration office — they change over time.

Grant and Contract Requirements

Many foundations and government contracts require audited financial statements as a condition of funding. Common triggers:

• Federal grants (often even below the $750K Single Audit threshold)
• State contracts for service delivery
• Some private foundation grants (especially larger grants)
• United Way funding (varies by local United Way)
• Major corporate partnerships

Internal Decisions to Get an Audit

Even when not required, organizations may choose to get an audit for:

Donor confidence — Audited financials increase credibility with major donors

Board governance — Independent verification of financial controls

Grant readiness — Preparing for grants that will require audits later

Transition periods — New executive director, major growth, or restructuring

Fraud concerns — If there are concerns about financial management

Audit vs. Review vs. Compilation

There are three levels of financial statement attestation, from most to least rigorous:

If no audit is required, a review or compilation may be sufficient and significantly less expensive.

How to Prepare for a Nonprofit Audit

6-12 Months Before

Clean up your books monthly. Reconcile bank accounts, categorize all transactions, and resolve any coding errors.

Document internal controls. Write down your processes for cash handling, approvals, and segregation of duties.

Maintain grant files. Each grant should have a folder with the application, award letter, reports submitted, and supporting documentation.

3 Months Before

Select your auditor. Get quotes from 2-3 firms. Choose one with nonprofit experience.

Schedule the audit. Audit season (January-April) is busy — book early.

Prepare the audit request list. Your auditor will provide a list of documents needed. Start gathering them.

1 Month Before

Finalize year-end accounting. All transactions should be recorded, all bank accounts reconciled, all grants coded correctly.

Prepare schedules. Fixed asset schedule, grant revenue schedule, depreciation schedule, and others.

Compile board materials. Board minutes, conflict of interest disclosures, executive compensation decisions.

During the Audit

Assign a staff liaison to coordinate with the auditor

Respond promptly to auditor questions

Document adjustments the auditor proposes

Discuss findings before the final report is issued

Common Audit Findings

Understanding common findings helps you avoid them:

Inadequate segregation of duties — Same person handles cash receipts and deposits, or approves and records transactions

Missing documentation — Invoices, contracts, or approvals cannot be located

Improper revenue recognition — Pledges, grants, or restricted funds recorded incorrectly

Functional expense allocation errors — Expenses not properly allocated between program, management, and fundraising

Internal control deficiencies — Weak approval processes, missing reconciliations, or lack of oversight

Federal grant compliance issues — Time and effort reporting, procurement procedures, or cost allowability

How Much Do Nonprofit Audits Cost?

Audit costs vary based on organization size, complexity, and location:

Single Audits (federal compliance) add 25-50% to the base audit cost.

Ways to Reduce Audit Costs

• Strong accounting and internal controls reduce auditor time
• Well-organized documentation (vs. shoeboxes of receipts)
• Timely responses to auditor requests
• Consistent staff (avoid staff turnover during audit season)
• Single-year engagements with competitive bids every 3-5 years

Frequently Asked Questions

Who can perform a nonprofit audit?

Only Certified Public Accountants (CPAs) licensed in your state can issue audited financial statements. The CPA firm must also be independent — not involved in preparing your accounting records or providing bookkeeping services.

How long does an audit take?

From start to final report: typically 4-8 weeks for small to mid-sized organizations. The on-site fieldwork portion is usually 1-3 weeks.

Do we need an audit if we have 501(c)(3) status?

Not automatically. 501(c)(3) status itself does not trigger an audit requirement. Audits are required only when triggered by federal funding thresholds, state charitable registration rules, grant/contract requirements, or internal governance decisions.

What's the difference between an audit and Form 990?

Form 990 is an informational tax return filed with the IRS. An audit is an independent examination of your financial statements by a CPA. Some states require audited financials as an attachment to state charitable filings, but the IRS does not require Form 990 to be audited.

Building Audit-Ready Financial Systems

The best way to manage audit costs and avoid findings is to maintain strong accounting practices year-round. Giddings Consulting Group helps nonprofits strengthen financial management, internal controls, and audit readiness.

Contact us to discuss your organization's financial management needs.