Why does a nonprofit need an audit?
Three reasons, in this order: the law requires it above certain thresholds, funders and lenders require it in their agreements, and the board needs an independent check. The first is measurable — 22,398 nonprofit single audits were filed for audit year 2024, and 16.2% reported at least one finding (data as of 2026-09-20).
Last verified: 2026-09-20 · Every figure links its source.
Why do nonprofits get audited?
| Driver | Trigger | Source |
|---|---|---|
| Federal awards | Expending $1,000,000 or more in federal awards in the fiscal year | 2 CFR 200.501 |
| State charity law | Gross revenue or contributions above the state threshold | example: Cal. Gov. Code § 12586 |
| Funder or lender | A grant agreement or loan covenant | The agreement itself |
| Bylaws or board policy | The organization's own rules | Internal |
Source: 2 CFR 200.501 · Cal. Gov. Code § 12586 · Last verified: 2026-09-20
Why are single audits important?
Because they are the mechanism by which federal money is checked at the point it is actually spent. The auditor tests compliance for each major program and reports deficiencies in internal control over that compliance (2 CFR 200.514), the agency issues a management decision on findings (2 CFR 200.521), and the whole package is public. For a grantee, a clean single audit is the cheapest credential available when applying for the next award.
Source: 2 CFR 200.514 · 2 CFR 200.521 · Last verified: 2026-09-20
Why do annual audits matter to small nonprofits?
The honest answer is that they sometimes do not. Below every threshold, an audit is a discretionary purchase, and a review or compilation may satisfy the funder that asked. What small organizations do need is the discipline an audit imposes — reconciliations, documented approvals, a closed year — and those can be built without buying an opinion. When money does arrive with strings, the threshold test is mechanical: federal awards expended in the fiscal year (2 CFR 200.501).
Source: 2 CFR 200.501 · 2 CFR 200.425 · Last verified: 2026-09-20
Why get a CPA review instead?
Because it is cheaper and sometimes sufficient. Several states accept a review in a band below their audit threshold — Massachusetts up to $1,000,000 of gross support and revenue, New York from $250,000 up to and including $1,000,000, Pennsylvania from $250,000, Michigan from $325,000 (MA, NY, PA, MI). A review gives limited assurance, not an opinion, and it does not satisfy a federal single audit requirement.
Source: Mass. Gen. Laws ch. 12, § 8F · N.Y. Exec. Law § 172-b · Pennsylvania Bureau of Corporations and Charitable Organizations · Mich. Comp. Laws § 400.273 · Last verified: 2026-09-20
Questions and answers
Why does a nonprofit need an audit?
Because federal awards expended crossed the threshold, because state charity law requires one at the organization's revenue level, or because a funder, lender or the bylaws require it.
Why do nonprofits get audited?
Not as a suspicion of wrongdoing. An audit is a recurring requirement attached to size, funding source and registration, and for federal money it is how compliance is checked.
Why are single audits important?
They test compliance with federal program requirements at the level where money is spent, and the results are public and acted on by the awarding agency.
How important is an audit for a small nonprofit?
Below every legal threshold it is optional, and a review may satisfy the funder that asked. The discipline it imposes — reconciliations, approvals, a closed year — matters more than the opinion.
Why should a nonprofit have an audit before it is required?
Usually to satisfy a specific funder or lender, or to prepare for a year in which federal awards will cross the threshold. Buying one early has a cost consequence: audit costs are generally not allowable against federal awards when the audit was not required.
Find out whether you are required to: check the threshold.
Questions this page answers
Other ways people ask the same things, and where the answer sits above.
- Why does irs audit people?
- Why get a cpa review for your nonprofit?
- Why your nonprofit should voluntary cpa audit?
- How important is an audit for a nonprofit?
- Why do nonprofits need a financial audit?
- Why nonprofits need annual audits?
This is public-record information, not accounting or legal advice.