ARCHIVES
Quick Summary
- What it is: An independent CPA firm’s review of your nonprofit’s financial statements, ending with a formal opinion on whether those numbers hold up
- The main types: Financial statement audits, Single Audits (for federal grant recipients), and Yellow Book audits (for Government Auditing Standards)
- When you need one: Federal grant size, state rules, funder contracts, and your own bylaws can all trigger a required audit
- What to expect: A few weeks of prep, a few days of fieldwork, then a final report with recommendations for tightening your controls
What Is a Nonprofit Audit?
A nonprofit audit is an independent examination of your organization’s financial records, performed by a licensed CPA firm. At the end of the process, the auditor issues a formal opinion on whether your financial statements fairly represent your financial position in accordance with Generally Accepted Accounting Principles (GAAP).
In practice, it means an outside firm digs into your books, evaluates your internal controls, and produces the kind of report your funders and board can trust.
One quick clarification. People sometimes use “audit” as a catch-all for any financial review, but in accounting terms, it’s a specific service with a specific standard of assurance. Audits are more thorough (and more expensive) than reviews or compilations. If someone tells you your nonprofit needs an audit, confirm they mean a full audit and not one of the lighter-touch alternatives.
The Types of Nonprofit Audits
Not every nonprofit audit looks the same. Depending on your funding sources and reporting requirements, you might encounter any of these:
Financial Statement Audit
The standard annual audit most nonprofits deal with. Your CPA firm performs an independent, professional examination of the Organization’s financial statements and issues an opinion on whether they accurately reflect your organization’s financial position under GAAP. If your board, bank, or a major funder asks for “audited financials,” this is usually what they mean.
Single Audit (Uniform Guidance)
Required for nonprofits that spend $1,000,000 or more in federal grant funds during a fiscal year. A Single Audit combines a standard financial statement audit with additional testing on your compliance with the specific rules attached to those federal awards. If your nonprofit lands a major federal grant, congratulations on the funding. Be sure to track your federal funding and expenditures by grant and have your audit under Uniform Guidance conducted timely.
Yellow Book Audit
Yellow Book audits follow the Government Auditing Standards published by the U.S. Government Accountability Office. They are designed to test internal controls and compliance with laws, regulations and grant terms on a deeper level than a standard financial audit. This level of audit may be required If you receive state or federal funds that specify Government Auditing Standards, or a funder writes it into a grant award.
Nonprofit Audit Requirements: When Is One Actually Required?
Audit requirements for nonprofits don’t come from a single source. They’re a mix of federal, state, and stakeholder rules, and most nonprofits are subject to more than one. Audit requirements for nonprofit organizations can also shift as your funding sources change year to year, so it’s worth revisiting where you stand annually.
Federal Requirements
If you spend $1,000,000 or more in federal funds in a fiscal year, you need a Single Audit. That includes pass-through funds coming to you from a state agency that originally received the money from the federal government.
State Charitable Registration Thresholds
Both Georgia and South Carolina require charitable organizations to register before soliciting donations. Georgia’s rules are tiered by revenue: reviewed financial statements from a CPA at $500,000 in contributions, and audited financials at $1 million or more.
South Carolina’s thresholds are structured differently and rely on IRS Form 990 filings rather than a strict revenue-triggered audit threshold. For a broader look at how audit requirements vary across states, the National Council of Nonprofits maintains a full state-by-state breakdown.
Funder Requirements
Foundations, corporate giving programs, and government grantmakers often require audited financials before writing checks above certain sizes. If you’re applying for a large grant, read the fine print. Many funders want to see two or three years of audited statements before they’ll consider you.
Bylaws and Board Decisions
Your own governance documents might require an annual audit regardless of external triggers. Boards sometimes add this requirement to signal financial accountability to donors and members.
Bank and Lender Requirements
If your nonprofit has a line of credit or loan, your lender may require audited financials annually as part of the loan covenants.
If any of these apply to your organization, an audit isn’t optional. And even when you’re not required to have one, some boards choose to pursue an audit for the credibility it brings when courting new funders.
Your Nonprofit Audit Preparation Checklist
Preparation is where most nonprofits either save themselves stress or create it. The organizations that walk into audit season calm are the ones treating their books like they’d be examined all year long, not just in the weeks before the auditor arrives. Here’s a working nonprofit audit checklist to guide you.
Your Nonprofit Audit Preparation Checklist
- Get your documentation in order. Your auditor will ask for bank statements, monthly reconciliations, general ledger detail, journal entries, and support for major transactions. Pull everything together in advance so you’re not scrambling.
- Organize donor and grant records. Restricted contributions need clear documentation showing the donor’s intent and how the funds were used. Grant files should include the original agreement, budget, expense support, and any reporting you’ve done to the funder.
- Pull board minutes and governance documents. Auditors look at board minutes to understand major decisions and confirm proper authorization for significant transactions.
- Review your prior year’s audit and management letter. If last year’s auditor made recommendations, be ready to show what you’ve done about them. Repeat findings look bad and are often preventable.
- Test your internal controls before the auditor does. Walk through your cash handling, check signing, purchase approval, and reconciliation processes. If something feels weak, address it now.
The audit itself typically follows a similar rhythm across firms. You’ll go through pre-audit planning with your CPA, provide requested documents, host the auditor’s fieldwork (either onsite or remote), review draft findings, and then receive your final report along with a management letter outlining recommendations for the coming year.
How to Choose a Nonprofit Audit Firm in the CSRA
Not every CPA firm is a good fit for nonprofit work. Fund accounting and grant compliance are their own discipline, and general business CPAs sometimes stumble on the specifics of restricted contributions and Uniform Guidance testing.
When you’re evaluating a nonprofit audit firm, look for:
- Nonprofit specialization. How many nonprofit clients does the firm serve? Are the auditors trained on fund accounting and Uniform Guidance?
- Experience with your funding sources. If you receive federal grants, you want a firm that does Single Audits regularly.
- Communication style. Your auditor should be able to explain findings and answer your questions in plain English, not just accounting jargon.
- Local presence and accessibility. A local firm can meet in person, understands your regional funding landscape, and is easier to reach when questions come up mid-year.
- References from similar organizations. Ask to speak with nonprofit clients close to your size.
The lowest bid isn’t always the best choice. A firm that undercharges and rushes through your audit can miss issues that cost you real money down the road, whether through funder concerns, board pushback, or repeat findings.
Ready to Talk About Your Nonprofit’s Audit?
Nonprofits across the CSRA have real work to do, and untangling audit requirements shouldn’t pull you away from your mission. SME CPAs has worked with local nonprofits for years, and our audit services team knows what organizations across Augusta, Aiken, and the wider CSRA need at every stage of the process.
Looking for a nonprofit audit firm that understands fund accounting and the reporting funders expect? Reach out to schedule a conversation about where your nonprofit stands.