A practical guide to audit services, firm selection, and preparation
Table of Contents
A nonprofit audit provides independent assurance over an organization’s financial statements, but the audit process can also reveal issues that affect financial reporting, internal controls, grant compliance, and financial oversight.
Whether you are preparing for your first audit, changing firms, or facing new requirements as your funding grows, understanding what nonprofit audit services involve can help you choose the right approach and prepare for a smoother engagement.
What are nonprofit audit services?
A nonprofit financial statement audit is an independent examination of an organization’s financial statements and related information. The auditor issues an opinion on whether the financial statements are presented fairly in accordance with the applicable financial reporting framework.
Nonprofit audits often involve accounting issues specific to tax-exempt organizations, including donor restrictions, contribution revenue, functional expense allocations, endowments, grants, and complex funding arrangements. Depending on the organization and its funding, additional government or compliance requirements may also apply.
Not every nonprofit has the same audit requirements. An audit may be required by a government agency, funder, lender, governing document, or other stakeholder. Organizations receiving significant federal funding may also be subject to Single Audit requirements.
What happens during a nonprofit audit?
The exact process varies, but most nonprofit audits include four basic stages:
Preparation can have a significant effect on the experience. In our work with nonprofits, some of the most common challenges arise when documentation is incomplete, responsibilities are unclear, or preparation begins too close to fieldwork. Establishing expectations early gives both teams more time to resolve questions before reporting deadlines.
What should you look for in a nonprofit audit firm?
Technical qualifications matter, but so does how the firm manages the engagement and supports your organization throughout the year.
What to Evaluate | Why It Matters | Question to Ask |
|---|---|---|
Nonprofit Experience | Your auditors should already understand nonprofit accounting, funding, and reporting issues | How many organizations similar to ours does your team audit? |
Engagement Team | Experienced, consistent teams spend less time relearning your organization each year | Who will perform the work, and how involved will the partner be? |
Audit Process | Clear requests and realistic timelines can reduce demands on your staff | What should we expect during planning, fieldwork, and reporting? |
Communication | Issues are easier to address when they are identified early. | How and when will potential findings or adjustments be discussed? |
Single Audit Experience | Federal and state funding may introduce additional compliance requirements. | What experience does the proposed team have with organizations receiving government awards? |
Ongoing Support | The broader relationship can provide value beyond the annual audit. | What support, education, and access to your team are included in the engagement? |
Look beyond the audit itself when comparing firms. Some firms provide educational resources, board training, access to nonprofit specialists, or opportunities to discuss routine questions throughout the year. Others may charge separately for conversations or services outside the defined audit scope. Understanding what is included can help you compare the overall value of each relationship, not just the quoted audit fee.
Price belongs in the comparison, but it should not be the only consideration. Delayed requests, repeated questions, turnover, and last-minute issues can consume significant staff time even when the audit fee itself is lower.
Consider internal control experience
Auditors consider relevant internal controls when planning and performing an audit. For nonprofits, those controls may involve cash activity, payroll, expense approvals, financial close procedures, grant expenditures, technology, financial reporting, and board oversight.
Smaller organizations often cannot separate every financial responsibility among different employees. That does not eliminate the need for controls. Instead, the organization may need other review or oversight procedures to address those risks.
An auditor who regularly works with nonprofits should understand the realities of lean finance teams and evaluate controls within the context of the organization’s actual structure.
What changes when your nonprofit receives government funding?
Government awards can introduce complex requirements related to allowable costs, procurement, reporting, eligibility, matching funds, subrecipient monitoring, and other program-specific conditions.
As federal funding becomes more significant, audit preparation also tends to extend beyond the financial statements. Documentation, written policies, internal controls over compliance, and accurate federal award reporting become increasingly important.
When is a Single Audit required?
For fiscal years beginning on or after October 1, 2024, a nonprofit that expends $1 million or more in federal awards during the fiscal year generally must undergo a Single Audit or, in certain circumstances, a program-specific audit.
A Single Audit includes the financial statement audit along with additional procedures related to federal programs, compliance requirements, and internal controls over compliance.
Organizations approaching the threshold should not wait until year-end to begin assessing their federal expenditures. The Schedule of Expenditures of Federal Awards, or SEFA, is used to determine federal expenditures and plays an important role in identifying the programs subject to audit testing. An incomplete or inaccurate SEFA can affect both whether a Single Audit is required and how the audit is performed.
If your organization is nearing the threshold, choosing an auditor with Single Audit experience before the requirement applies can make the transition easier. Depending on the funding and engagement requirements, additional government auditing standards may also apply. An experienced Single Audit team should be able to identify those requirements and explain what they mean for your organization.
When should you begin the nonprofit audit RFP process?
Start early enough to evaluate firms, complete any required board or audit committee review, and give the selected firm time to plan before fieldwork begins.
As a general rule, consider beginning the RFP process three to four months before your fiscal year-end or anticipated audit planning period. Starting earlier is even better when possible. Audit firms often schedule engagements well in advance, so giving firms more notice can provide greater flexibility around timing and team availability. The longer you wait, the more limited your options may become.
A few RFP best practices can help keep the process focused:
Consider three to five firms with relevant nonprofit and specialized audit experience.
A prospect call gives firms an opportunity to understand your organization, scope, timing, and priorities before developing a proposal. It also gives you an early sense of how the team communicates.
Give each firm the same scope, timing, funding, and reporting requirements so proposals are easier to compare.
Compare the proposed team, relevant experience, audit approach, communication, ongoing support, and fees.
Audit fees are not always directly comparable. A higher proposal may reflect a more experienced team, greater partner involvement, additional advisory support, educational resources, or services that would be billed separately by another firm. Compare what is included in the engagement, not just the bottom-line fee.
RFPs are often recycled from prior searches or borrowed from other organizations. Make sure the requirements and questions still reflect what matters to your organization and how you plan to evaluate firms.
If you are changing firms, also ask how the new auditor will manage the transition and become familiar with your organization. The RFP process can also help you assess whether the firm’s working style, priorities, and approach to client relationships align with your organization’s values and expectations.
Choosing the right audit relationship
A nonprofit audit firm should bring both technical expertise and an understanding of how nonprofit organizations operate. Look closely at the people who will perform the work, their experience with organizations like yours, the support available beyond the annual audit, and the process they use to keep the engagement organized and communicate issues as they arise.
Wegner CPAs’ nonprofit assurance professionals work with organizations on financial statement audits, Single Audits, nonprofit reporting issues, and government funding compliance. Our focus is on helping organizations understand what is required, prepare effectively, and move through the audit process with fewer surprises.
