Thirdly, making a habit of an annual audit creates a discipline of adhering to generally accepted accounting principles. The one condition is that annual contributions must exceed $300,000 for the group to use an independent CPA to submit audited financial statements. If donations fall below this threshold, the nonprofit audit is only necessary if the charity employs a fundraising professional for solicitation. Yearly collections falling beneath $25,000 need not file any audited financial records. These provisions fall under the Solicitations for Charity Act passed by the Illinois state legislature. An independent financial audit is a comprehensive review conducted by an external, certified auditor.

Understanding Nonprofit Audit Requirements

• The scope refers to the extent and type of review that will be conducted by the auditor.
• In many states, audits are also legally required once certain revenue thresholds are met.
• By understanding and adhering to these requirements, nonprofits can operate with the highest levels of transparency and accountability.
• Financial audits are useful in evaluating your organization’s financial statements and reporting.
• Use this change as an opportunity to reassess your organization’s long-term financial planning strategies.
• Assurance is an opinion given by a CPA on the accuracy of an organization’s financial statements.

The first thing to know about this report is that if it isn’t clean, that is totally fine! What really matters isn’t how many recommendations the auditor made—it’s how promptly and thoroughly you act on them. Although you’ll need to put in effort to prepare beforehand and apply the auditor’s recommendations afterward, the benefits of financial auditing typically outweigh these costs. For instance, if the audit revealed issues with grant compliance, establish a more detailed tracking system for grant expenditures and reporting.

File

As an example, the state of California requires annual audits for all nonprofit organizations in the state that have a gross income of $2 million or more. The revenue thresholds differ depending on the state, so be sure to check out https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ this state chart to see what the audit requirements are in your state. A key component of nonprofit reporting is the Form 990, required annually by the IRS for tax-exempt organizations in the United States. This form provides detailed information about the nonprofit’s finances, governance, and programs, serving as a public document that enhances transparency.

Other IRS-wide considerations

Although centralized, the system can be configured to facilitate access to external auditors so they can run the nonprofit audit remotely. Specialist nonprofit accounting software with audit automation capabilities can make sense of this entire operation by organizing documents, ensuring secure access, and tracking internal review processes. This examines whether your operation adheres to applicable laws, regulations, and funding requirements. Shortly after receiving the report, schedule a leadership team meeting to review it in detail and create an action plan that addresses everything the auditor identified across all relevant areas of your organization. Some of these actions may be simple improvements that add up to make a significant difference in your operations, while others may be more complex changes that will take time and effort to implement. Once the auditor completes their work, they’ll compile their findings into a report and present it to your nonprofit.

Find an auditor

Other factors include the number of locations, the number of employees, the number of funders, the number of volunteers, and the geographic dispersion of the organization’s operations. As a whole, the audit process takes approximately, 8-15 weeks depending on the size and complexity of the organization. Compressed timeframes could achieve audit completion in as short as 4-6 weeks. Also, allow for pre-audit time to begin gathering the required documentation prior to the start of the audit which will help reduce the time needed to complete the audit. One common misconception about nonprofits is that they are not required to disclose their financial information to the public.

This commences with extensive research and continues with winnowing the field of auditors with interviews and deeper questions, issuing a request for proposal (RFP) by an auditing firm, and making a final choice. A CPA examines your financial records, but much less thoroughly than in a full-blown audit. Unlike an audit, the CPA does not express an opinion as to whether your financial statements are in accordance with GAAP. Instead, the accountant merely states whether he or she is aware of any material modifications that should be made to the financial statements for them to be in conformity with GAAP.

DCG has a transparent and structured pricing approach tailored to the specific needs of our clients. For our Office of Finance as a Service, we charge 2% of the client’s monthly revenue. When it comes to audits and tax services, we initiate a scoping call to understand the intricacies of the project, allowing us to provide a custom quote that reflects the complexity and requirements of the task at hand. This ensures our clients receive value-driven, precise, and equitable pricing for every engagement. Whether it’s required by law or simply a smart strategic move, a nonprofit audit can strengthen your organization from the inside out. Schedule a free consultation with DeMar Consulting Group and get clear on what’s required—and what builds trust.

• There are two types of financial reporting that nonprofits must adhere to, the financial review and the financial audit.
• Use them to reaffirm your organization’s commitment to integrity, transparency, and fiscal responsibility.
• By providing audited financial reports and annual reports on your website, you’re helping build trust with your donor base.
• States like Ohio and Georgia introduce additional layers of complexity with their own distinct audit thresholds and reporting requirements, often going beyond federal mandates.
• Since you’ll have plenty of time to plan for most audits, you can take time to research and prepare.
• The audit revealed several deficiencies in the school’s accounting practices, including non-compliance with Financial Accounting Standards (FAS) #116, #117, and #157, and misclassification of assets and liabilities.
• Preparing for the audit is a crucial step that involves gathering all necessary documents and ensuring they are organized and ready for review.

Increase in Type A Program Threshold

If the IRS doesn’t require an audit, you may wonder why you might put your organization through this process, as cumbersome and time consuming as it can be. However, there are accounting services for nonprofit organizations a few reasons why you might need to conduct an independent audit to remain in compliance with your organization’s other obligations. Compliance audits are conducted by government agencies or third-party organizations to ensure that the nonprofit is complying with all applicable laws and regulations. There is no set timeframe for how often a nonprofit should have an audit if not required by law or contract. However, most organizations choose to have a financial audit conducted every year once they reach a point of needing one.

As a nonprofit organization, you’re likely going to need a 501c3 audit at some point during the span of your operations. Although the IRS doesn’t set forth specific 501c3 audit requirements, there are times when your organization will need an audit. Adding an audit requirement to your organization’s bylaws may seem redundant for many nonprofits.