Nonprofit Audit: When You Need One and What It Costs

An audit is an independent examination of your financial statements resulting in an opinion on whether they are fairly presented. It is not a fraud investigation, not a review of whether you spend money wisely, and not an IRS process.

That last point causes real confusion. The IRS does not require an audit. Your annual return from the 990 series is the federal requirement, and it is prepared from your books rather than from an audit.

The three things that actually trigger one

Your own bylaws may also require one, which organizations sometimes discover years later. Worth checking.

State thresholds are the item most often quoted wrongly. They differ substantially between states, several states have changed theirs in recent years, and some tie the requirement to gross revenue while others use contributions received. Check your state’s charity regulator, usually within the Attorney General’s office, rather than relying on a figure from a blog.

The Single Audit threshold, and what crossing it costs

The federal row in that table is the one with an actual number behind it, so here it is. An organization that expends $1,000,000 or more in federal awards in a fiscal year must have a Single Audit under 2 CFR Part 200 Subpart F.

That figure is recent. It was $750,000 until the 2024 revision of the Uniform Guidance raised it, effective for fiscal years beginning on or after 1 October 2024, so a great deal of published advice still quotes the old number. A further OMB revision was proposed in May 2026 and does not change the threshold.

Three details decide whether it applies to you, and each is a common mistake.

What a Single Audit adds is not a bigger version of the same work. A financial statement audit asks whether the numbers are right. A Single Audit also tests compliance: whether you spent the money on allowable costs, followed the procurement rules, met eligibility requirements, and reported when you were supposed to. It requires a schedule of expenditures of federal awards, and it produces findings that go to the funding agencies rather than only to your board.

Budget for it as a different exercise. The fee is materially higher than a financial statement audit alone, not every firm does them, and the ones that do are booked further ahead. The submission deadline is also fixed rather than negotiable: the reporting package and data collection form go to the Federal Audit Clearinghouse within 30 days of receiving the auditor’s report or nine months after the end of the audit period, whichever comes first.

If you are approaching the threshold, the useful moment to prepare is the year before you cross it, because compliance testing looks at decisions already made. Procurement documentation, time and effort records for federally funded staff, and a written allocation basis for shared costs are all things that either exist contemporaneously or cannot be reconstructed. Where federal money sits in the wider funding picture is covered in nonprofit grants, and the statements the audit produces are in nonprofit financial statements.

How many charities are actually audited, by size

The triggers above are easier to judge against what other organizations do. Form 990 asks two audit questions in Part IV: whether the organization obtained its own independent audited financial statements for the year (line 12a), and whether it was included in a consolidated audit, usually a parent’s (line 12b). Both are in the IRS annual extract for 256,539 charities with at least $25,000 of spending.

29.2% of charities, 74,847 organizations, obtained their own audit. Another 8.8% were audited only as part of a related organization, and 62.0% had neither. Revenue is used here rather than spending because state thresholds are set on revenue or contributions.

The curve is steep and it crosses halfway in one place. Under $500,000 an audit is unusual: 88.6% and 85.1% of organizations in those bands have neither kind. At $750,000 to $1m a third have their own. Between $1m and $2m it is 46.1%, and from $2m it is the clear majority. If your organization is under half a million and someone is asking for audited statements, you are in the minority, which is a good reason to ask whether a review would satisfy them before buying the more expensive engagement.

The fall above $25m looks odd and is not. Those organizations are not skipping audits: 50.4% of them are covered by a consolidated audit, typically a hospital system or a university with subsidiaries, and only 4.6% have no audit of either kind. A rate that dips at the top of the range usually means the question is being answered somewhere else, and here the second column shows where.

Audited organizations also hold more cash than unaudited ones in every band from $250,000 of spending upwards: a median of 5.9 months against 4.8 at $250,000 to $1m, and 3.0 against 2.0 at $5m to $25m. That is an association, not evidence that an audit builds reserves; the organizations with lenders and institutional funders are both the ones asked for audits and the ones those funders expect to hold cash. How much cash charities hold, by size has the full distribution.

Audit, review, compilation

Three different services at three very different prices, and organizations routinely buy the most expensive when a funder would have accepted the middle one.

Before commissioning an audit because a funder asked for financial statements, ask them whether a review would satisfy the requirement. It often does, and the saving is substantial for an organization at this size.

It is worth seeing that cost in proportion. An audit sits in the same group of fixed back office costs as rent, insurance and accounting, and that group runs to a median of 9.2% of spending across the sector but a 90th percentile of 44.0% for organizations under $250,000. A small organization paying for an audit it does not legally need is the single most common reason for a back office share that looks indefensible. The distribution is in what nonprofits actually spend money on.

What it costs

Fees vary by region, by organization complexity and by how ready your records are, so any single figure quoted online is unreliable. The tax returns do give a defensible range by size, set out in the next section. Where you land inside it depends on three things.

Your complexity, not your size. A $2m organization with one funding source and clean books can cost less to audit than a $600,000 organization with fifteen restricted grants, a federal award and disorganised records.

How prepared you are. An auditor who has to reconstruct your reconciliations bills for it. Audit-ready books are the single largest lever you control over the fee.

Whether it is your first. First-year audits cost more because the auditor must establish opening balances and understand your systems.

Get three quotes, from firms with genuine nonprofit experience, and ask each what would make the engagement cheaper. Good auditors will tell you.

What audited organizations actually pay

The returns cannot show an audit fee directly. Part IX line 11c records every fee paid to outside accountants, which includes the audit but also bookkeeping, payroll services and preparing the return itself. What they can show is the difference between audited and unaudited organizations of the same size, which is the closest published estimate of what being audited adds to the bill.

Being audited adds a median of $6,172 to $15,837 a year to outside accounting fees, depending on size. For an organization with $1m to $2m of revenue, audited peers pay $19,400 against $9,125 for unaudited ones. The multiple is the more useful figure for small organizations: under $250,000, audited charities pay 4.2 times what unaudited ones do, because for them the audit is most of the accounting bill. Above $25m it is 1.2 times, a rounding error against everything else a large finance function buys.

The obvious objection is that audited organizations are different in other ways, and they are. Under $250,000, 46.6% of audited organizations have staff salaries against 28.1% of unaudited ones, and payroll brings its own accounting costs. Restricting both groups to organizations with payroll barely moves the answer: the difference is $5,460 under $250,000, $9,985 at $1m to $2m and $10,968 at $2m to $5m, and it stays between those figures in every band.

A second check cuts the other way, and it is worth being straight about. Organizations audited only inside a parent’s audit, which usually do not pay for it themselves, still report higher fees than unaudited peers: $14,932 against $9,125 at $1m to $2m. So part of the difference is complexity that comes with being the kind of organization that gets audited, not the engagement fee alone. The honest reading of the table is the annual cost of being an audited organization: the audit plus the tighter bookkeeping it forces.

Use the middle half as a sense check on quotes, remembering that these are total outside accounting fees and the audit is only part of them. A $600,000 organization whose audit quote alone sits above $20,509, the 75th percentile for its band, should ask what is driving it: usually a federal award, many restricted grants, or books the firm expects to repair.

As a share of spending, the burden falls hardest at the bottom. The median audited charity under $250,000 of spending pays 5.04% of its total spending in accounting fees against 1.60% for unaudited ones. At $250,000 to $1m it is 2.26% against 1.04%, and above $25m it is 0.16% against 0.13%. That gap is the case, in numbers, for the advice further down that a small organization with nothing requiring an audit usually should not buy one. It also sits inside the back office costs set out in what charities spend on administration.

Two limits. Between 16.3% and 22.1% of audited organizations in each spending band report no accounting fees at all, usually because the fee is paid by a related organization or booked on another line, so they are left out of the medians. And the figures are from returns processed in 2024, so allow for fee inflation since.

Preparing, which is where you save money

Most of an audit’s cost is the auditor doing work you could have done. A prepared organization pays less and finishes sooner.

The restricted funds schedule is the one that hurts. In general accounting software, restrictions live as tags rather than as fund balances, so reconstructing what each fund actually holds as of year end is manual work. That reconstruction is where sloppy setup presents its bill.

The timeline, and when to start

The list above is what to have. This is when, because most of the cost and nearly all of the stress come from starting late. An audit is not a week of work at the end of the year. It is a sequence with a long tail.

Two dependencies catch organizations out. Form 990 draws on the audited numbers, so a late audit pushes the return towards an extension. And funders that require audited statements ask for the accepted version with the board’s date on it, not a draft, so a slipped board meeting can hold up a grant payment even though the audit itself finished.

If this is your first audit, add time at both ends. The auditor must establish opening balances before fieldwork can begin, and the first management letter is usually longer, so the review conversation at the end takes more than one sitting.

The management letter is the useful part

Alongside the opinion, the auditor usually issues a management letter identifying weaknesses in your controls. Small organizations often receive the same findings: inadequate segregation of duties, because one person does everything, and reliance on a single individual for financial records.

Those findings are real and largely unavoidable at small scale, and there are practical mitigations. A board member reviewing bank statements independently. Two signatures above a threshold. Someone other than the person who enters transactions reviewing the monthly reconciliation.

Take the letter to the board and record what you decided to do about each point. An organization that receives the same finding three years running, with no minute showing it was considered, is telling its auditor and its funders something.

What an audit does not do

Four things organizations expect from an audit and do not get, and the gap is where board confidence goes wrong.

It is not a fraud investigation. An audit is designed to give reasonable assurance that statements are free of material misstatement. It is not designed to detect a determined individual concealing small thefts, and auditors say so in their own engagement letters.

It does not assess whether you spend money well. An audit can conclude that your statements fairly present a year in which you wasted every dollar.

It does not check most compliance. Whether you filed your 990, registered in the states where you fundraise, or followed your grant conditions is generally outside an ordinary financial statement audit, unless it is a Single Audit covering federal awards.

It does not substitute for internal control. It happens once, months after the year ended. A monthly close with someone independent reviewing the reconciliation catches things while they are still small.

The practical conclusion for a board: an unqualified opinion is good news about the statements, not a clean bill of health for the organization, and treating it as the latter is how boards stop asking questions.

Preparation is mostly a matter of your financial statements being in order before anyone arrives, and the figures agreeing with your Form 990. The recurring calendar that keeps both current is in how to run a nonprofit.

An audit tests the statements, so the place to start is your financial statements. What comes out the other side, in a form donors will read, is the annual report.

The classification an auditor most often has to correct is the split between restricted and unrestricted money, usually because a board reserve was recorded as though a donor had imposed it. Net assets sets out the distinction before it becomes a finding.

Whether to have one voluntarily

If nothing requires it, an audit is a purchase, and it should be judged as one.

Reasons that justify it: you are about to apply to funders who require audited statements, you are taking on debt, your revenue is approaching your state’s threshold, or the board genuinely cannot get assurance any other way.

Reasons that do not: it feels more professional, or a board member from the corporate world assumes it is standard. For an organization under a few hundred thousand dollars with straightforward funding, the same money spent on a competent bookkeeper and a proper monthly close buys considerably more financial control than an annual audit does.

A useful middle position is a review, plus a board-level financial oversight routine that actually happens each month. That combination catches more, sooner, and costs less.

Questions people ask

Does the IRS require nonprofits to be audited?

No. The IRS requires an annual return from the 990 series, not an audit, and the return is prepared from your books.

Audit requirements come from three other places: state law, usually tied to charitable solicitation registration above a revenue threshold; a funder or lender writing it into an agreement; and federal award rules, where organizations expending federal money above the Single Audit threshold must have a Single Audit.

Your own bylaws may also require one, which is worth checking since organizations sometimes discover the requirement years after adopting the document.

Separately, the IRS can examine an exempt organization. That is an examination rather than an audit in the accounting sense, and it is not something you commission.

At what revenue does a nonprofit need an audit?

There is no single national threshold, which is why figures quoted online contradict each other.

Many states require an audit above a revenue level, commonly tied to charitable solicitation registration, and those thresholds vary substantially between states. Several states have changed theirs in recent years. Some measure gross revenue and others measure contributions received, which produces different answers for the same organization.

Check with your state's charity regulator, usually within the Attorney General's office, and check every state where you are registered to solicit, since the strictest requirement governs.

In practice, audits become common between $1m and $2m of revenue, where 46.1% of charities have their own, and they are the majority from $2m. Under $500,000, fewer than one in eight do.

Federal awards are separate, with a Single Audit required above a specified level of federal spending in a year.

How much does a nonprofit audit cost?

The returns give a range. Audited charities report median outside accounting fees of $8,100 under $250,000 of revenue, $19,400 at $1m to $2m and $40,561 at $5m to $25m. Unaudited organizations of the same size pay $6,172 to $15,837 less, which is the closest published estimate of what being audited adds.

Those totals include bookkeeping and return preparation, so the audit itself is part of them, not all of them.

Where you land depends on complexity more than size. Many restricted funds, a federal award or disorganised records all push the fee up, and first year engagements cost more because opening balances have to be established.

Get three quotes from firms with real nonprofit experience, ask each what would reduce the fee, and ask whether a review would satisfy whoever is requiring this.

What is the difference between an audit and a review?

The level of assurance and the amount of work behind it.

In an audit, the accountant tests transactions, confirms balances with third parties such as banks, assesses your internal controls, and issues an opinion on whether the statements are fairly presented.

In a review, they perform analytical procedures and make inquiries, without testing transactions, and provide limited assurance, essentially that nothing came to their attention suggesting material misstatement.

A review typically costs somewhere between a third and a half of an audit, and many funders accept one. Ask before commissioning the more expensive service, because organizations frequently buy an audit for a requirement a review would have met.

How do we prepare for an audit?

Have the documents ready before the auditor arrives, because most of the fee is them doing work you could have done.

Twelve completed bank reconciliations. A schedule of restricted funds with balances and the underlying grant agreements. Board minutes for the year. Payroll records and contractor 1099s. A fixed asset register with depreciation. Signed conflict of interest statements.

The restricted funds schedule is usually the hardest, because in general accounting software restrictions are tags rather than fund balances, so what each fund holds has to be reconstructed.

Ask the auditor for their document request list in advance and work through it before fieldwork starts. Organizations that do this finish faster and pay less.

What is a Single Audit?

A specific audit required of organizations that expend federal award money above a threshold in a fiscal year, conducted under federal requirements rather than ordinary audit standards.

It covers more than your financial statements. It examines compliance with the requirements attached to each federal programme: allowable costs, eligibility, reporting, procurement and cash management among them.

It is more demanding and more expensive than a standard audit, and it requires an auditor experienced in the framework. Not every firm does them well.

The threshold is set federally and has been revised, so confirm the current figure before assuming you are below it. Note that it turns on federal money expended in the year, not received, and that federal money passed through a state or another nonprofit still counts.

Who chooses the auditor?

The board, not management, and the distinction matters.

The auditor's role is to provide independent assurance, including to the board about the financial statements management prepared. An auditor selected and directed solely by the person whose work they are examining is not independent in substance, whatever the engagement letter says.

Larger organizations use an audit committee of the board for selection and to receive the results, and to meet the auditor without management present at least once. That last practice is worth adopting even at small scale, because it is where an auditor will raise a concern they would not put in writing.

Consider rotating firms periodically. There is no fixed rule for nonprofits, and long unbroken relationships can dull independence.

Should a small nonprofit get a voluntary audit?

Usually not, if nothing requires one. It is a purchase, and it should compete with other uses of the same money.

Good reasons to buy one anyway: imminent applications to funders who require audited statements, taking on debt, approaching your state's threshold, or a board that genuinely cannot obtain assurance otherwise.

Weak reasons: it feels more professional, or a director from the corporate world assumes it is standard practice.

For an organization under a few hundred thousand dollars with straightforward funding, the same money spent on a competent bookkeeper and a disciplined monthly close buys far more actual financial control. An audit looks backwards once a year; a monthly close catches problems while they are still small.

This is reference information, not legal or tax advice. Rules vary by state and change over time. For a decision that carries real consequences, check the current text at irs.gov or your state registry, and talk to a nonprofit attorney or CPA.