A nonprofit audit is an independent examination of an organization's financial statements to determine whether they are presented fairly and in accordance with applicable accounting standards. While not every nonprofit is required to undergo an independent financial audit, many organizations do so to meet grant requirements, satisfy lenders, fulfill state regulations, or demonstrate financial accountability to donors, boards, and other stakeholders. A well-executed audit strengthens confidence in your organization's financial reporting and reinforces your commitment to transparency.
Whether you're preparing for your first nonprofit audit or looking to improve an existing audit process, understanding what to expect is essential.
This guide explains when a nonprofit audit is required, what the audit process involves, how to prepare your organization, and what to look for when choosing an auditor. It also explores how an outsourced finance team can help streamline audit preparation and support your organization throughout the engagement.
While CFO Leverage does not perform audits in order to maintain auditor independence, we work alongside nonprofit organizations and their external auditors to prepare documentation, coordinate requests, and help ensure a more efficient audit process.
A nonprofit audit provides more than an independent review of your organization's financial statements. It strengthens financial management by confirming that financial records are accurate, complete, and supported by appropriate documentation. For nonprofits that manage grants and restricted contributions, audits help verify that donor-restricted funds are tracked and used in accordance with donor intent and applicable requirements. This level of oversight helps organizations demonstrate accountability while reducing the risk of errors or compliance issues.
Audited financial statements also provide valuable information for boards of directors, helping them fulfill their fiduciary responsibilities and make informed decisions about budgeting, financial planning, and organizational strategy. In addition, many financial institutions, grant providers, and major donors rely on audited financial statements when evaluating an organization's financial health and governance practices.
A successful audit reinforces confidence among stakeholders, supports future funding opportunities, and demonstrates a nonprofit's commitment to sound financial stewardship. Even when an audit is not required, maintaining audit-ready financial records can improve operational efficiency and position an organization for sustainable growth.
Not every nonprofit is required to undergo an independent financial audit, but several situations commonly trigger the need for one. Many grant agreements, lenders, and major donors require audited financial statements as a condition of funding or financing. In addition, some states establish audit thresholds based on annual revenue or charitable contributions, while organizations that expend a certain amount of federal funding may be subject to Single Audit requirements. Because these requirements vary, nonprofits should understand the regulations and funding obligations that apply to their organization.
Even when an audit is not legally required, boards of directors may request one to strengthen financial oversight, improve governance, or prepare for future growth. Consulting with your finance committee, CFO, or outsourced finance partner can help determine whether an audit is appropriate and ensure your organization is prepared to meet applicable requirements while maintaining accurate financial statements and strong relationships with financial institutions and funding partners.
A well-structured request for proposal, or RFP, helps your nonprofit compare qualified firms using consistent criteria. Begin by outlining your organization’s mission, size, funding sources, fiscal year, prior audit history, reporting deadlines, and the expected scope of the engagement. The RFP should also identify key deliverables, such as audited financial statements, a management letter, board or finance committee presentations, and any grant-related or regulatory reporting requirements that may affect the audit process.
Ask each audit firm to provide relevant nonprofit experience, proposed fees, references, and biographies for the professionals who would serve on your engagement. Request the firm’s most recent peer review report, confirmation of CPA licensing, and written evidence of auditor independence, including disclosure of any services or relationships that could create a conflict. You should also request a sample audit timeline that identifies planning, fieldwork, draft review, and final report milestones. Using a clear RFP makes proposals easier to evaluate and helps your organization select an audit firm with the right experience, capacity, communication style, and approach.
Selecting the right audit firm involves more than comparing fees. Your auditor should have the nonprofit expertise, technical qualifications, and communication style needed to support your organization while maintaining independence. Create a standardized evaluation process that scores proposals based on nonprofit experience, audit methodology, team qualifications, technology, responsiveness, and overall fit. Including board members, finance committee representatives, and financial leadership in the review process can help ensure an objective decision.
Audit Firm Experience and Industry Expertise
Choose an audit firm with extensive nonprofit experience, particularly with organizations similar in size, funding structure, and mission. Firms familiar with fund accounting, donor restrictions, grant compliance, and nonprofit reporting requirements are better equipped to identify risks and provide relevant guidance. Ask for examples of comparable nonprofit engagements and references from current clients.
Qualified Auditor Credentials and Peer Review
Confirm that the firm employs licensed Certified Public Accountants (CPAs) with nonprofit audit experience. Request its most recent peer review report and ask about professional certifications and continuing education to verify the firm's commitment to quality and current auditing standards.
Auditor Independence and Conflicts of Interest
Auditor independence is essential to a credible audit. Request a written independence statement confirming the firm has no relationships or consulting services that could impair its objectivity. This helps ensure an unbiased evaluation of your organization's financial statements.
Audit Process, Technology, and Risk Management
Ask firms to explain their audit process, including planning, fieldwork, communication, and reporting. Discuss their use of secure document-sharing platforms, data analytics, and risk assessment procedures to understand how they manage the engagement and keep the audit on schedule.
Financial Statements and Compliance Experience
Verify the firm's experience auditing nonprofit financial statements, fund accounting, grant compliance, and Single Audit requirements, if applicable. Familiarity with the expectations of grantors, lenders, and financial institutions can help streamline the audit and reduce compliance risks.
Meet the Audit Team
Understand who will be assigned to your engagement, including the audit partner, manager, and staff. Ask who will serve as your primary contact, how responsibilities are divided, and whether the same team will support future audits. Consistency promotes better communication and a deeper understanding of your organization's operations over time.
When evaluating an audit firm, look for one that:
If your nonprofit decides to change audit firms, plan the transition carefully to maintain continuity. A structured handoff of financial records, audit documentation, and historical information can help minimize disruption and ensure a smooth audit cycle with your new auditor.
Audit fees should be evaluated based on the scope of services provided, not just the lowest price. When reviewing proposals, ask each firm to clearly identify what is included in the fixed fee and what services may result in additional charges. For example, out-of-scope work may include significant schedule revisions, additional testing, or expanded grant compliance procedures. Understanding these costs upfront helps prevent unexpected expenses later in the engagement.
Compare proposals carefully to ensure each audit firm is pricing the same scope of work, deliverables, and timeline. A firm with higher fees may offer greater nonprofit expertise, stronger communication, or a more efficient audit process that delivers value beyond compliance. Transparent pricing allows your organization to budget with confidence while selecting an audit firm that provides the experience, responsiveness, and support needed for a successful audit.
Before selecting an audit firm, develop a structured evaluation process that aligns with your organization's needs and governance requirements. Create a shortlist of qualified firms with demonstrated nonprofit experience, then invite them to participate in interviews to discuss their audit approach, communication style, timeline, and proposed engagement team. A consistent evaluation process makes it easier to compare firms objectively and identify the best overall fit.
As part of your due diligence, request references from nonprofits similar in size, mission, or funding structure, and ask about the firm's responsiveness, technical expertise, and ability to meet deadlines. Present your findings to the board or finance committee with a recommendation that summarizes each firm's qualifications, proposed fees, and overall evaluation. Taking a thoughtful, well-documented approach to choosing an auditor helps establish a productive long-term relationship while ensuring your organization selects a firm that can support its financial reporting and compliance objectives.
Many nonprofit leaders have questions before beginning the audit process. While every organization is different, understanding the basics can help set expectations and reduce uncertainty.
How long does a nonprofit audit take?
Most audits take several weeks to a few months, depending on the organization's size, financial complexity, and how quickly requested documentation is provided.
How much does a nonprofit audit cost?
Audit costs vary based on factors such as organizational size, transaction volume, funding sources, and the scope of the engagement. Request detailed proposals from multiple firms to compare services and pricing.
What documents are required?
Auditors typically request financial statements, bank reconciliations, general ledger reports, grant agreements, donor documentation, board meeting minutes, accounting policies, and supporting schedules.
What happens if issues are found?
Auditors may recommend improvements to internal controls or financial processes in a management letter. Addressing these recommendations can strengthen financial management and improve future audits.
Can you change auditors?
Yes. Many nonprofits change audit firms because of organizational growth, changing service needs, or board decisions. With proper planning and documentation, transitioning to a new auditor can be completed with minimal disruption.
Choosing the right auditor is only one part of a successful nonprofit audit. Organizations that prepare financial records throughout the year, maintain strong internal controls, and follow a structured selection process are better positioned for an efficient audit and more reliable financial reporting. By understanding what to expect, evaluating audit firms carefully, and planning ahead, nonprofit leaders can reduce stress and strengthen financial accountability.
CFO Leverage helps nonprofits prepare for the audit process by organizing documentation, coordinating with external auditors, managing timelines, and supporting financial reporting throughout the engagement. Learn more about our audit leadership facilitation services or contact our team to discuss how we can help your organization navigate its next nonprofit audit with confidence.
