Beyond the Balance Sheet: The Real Value of a Nonprofit Audit

We get it — “audit” doesn’t exactly spark joy. But for nonprofits, an audit can be a powerful tool for building trust, securing funding, and preparing for the future.

Whether you’re responding to a funder’s request, planning for growth, or simply trying to strengthen oversight, knowing when an audit is truly necessary (and when it’s just smart strategy) helps you lead with confidence.

When Should You Consider an Audit?

Audits might feel intimidating or expensive at first glance, but they play a key role in transparency, credibility, and compliance. Here are the moments your nonprofit should seriously consider one:

1. You’ve Hit Legal or Regulatory Thresholds

Many states require audits once your organization reaches a certain level of revenue or contributions. For example:

• California: Audits are mandatory if gross revenue hits $2 million+

• Washington: Required if you receive over $3 million in contributions

Be sure to check with your state’s attorney general or charities bureau to confirm local rules. And even if you’re under the threshold, a voluntary audit can still be a smart move.

2. A Grantor or Funder Requires It

Government agencies, foundations, and corporate funders often want to see audited financials, especially if:

• You spend $750,000+ in federal funds (triggering a Single Audit).

• You’re receiving a large or multi-year grant.

• You want to boost your credibility for future funding.

An audit can position your nonprofit as a low-risk, high-trust grantee — the kind funders feel confident backing.

3. Your Board or Leadership Wants More Oversight

Even without legal or funding requirements, many nonprofits choose audits to reinforce good governance, especially when:

• Your organization is growing.

• There’s been a leadership change (e.g., new ED or CFO).

• You want to assess internal controls and financial systems.

Audits help reassure your board, donors, and community that your organization is serious about accountability.

4. You’re Preparing for a Big Move

Thinking ahead to a capital campaign, merger, or scaling up? An audit lays the groundwork for stronger financial management and builds stakeholder confidence.

Starting early — before an audit is required — makes the entire process smoother and far less stressful.

Audit vs. Review vs. Compilation: What’s the Difference?

Not every nonprofit needs a full audit. Depending on your size and goals, a review or compilation might be the right fit.

Audit

• Highest level of assurance

• Involves testing, internal control evaluation, and an auditor’s opinion

• Often required by funders

• Best for: Larger orgs or those with complex funding

Review

• Limited assurance

• Involves inquiries and analytical procedures — no testing

Best for: Mid-sized orgs or those not subject to audit requirements

Compilation

• No assurance provided

• CPA compiles financials from your data but doesn’t test anything

Best for: Small orgs or internal use

Not sure which one matches your needs? Ask your CPA which option aligns with your goals and obligations.

What to Expect From Your First Audit

Audits typically unfold in three key phases:

1. Planning

• You’ll gather key documents (prior year financials, grant agreements, policies).

• Your auditor will schedule a planning meeting to understand your systems and risks.

• You’ll receive a PBC (Prepared by Client) list outlining what to provide.

2. Fieldwork

• Auditors review transactions, confirm balances, and test controls — on-site or remotely.

• Expect questions, especially around grants, restricted funds, and functional expenses.

3. Reporting

• Auditors draft financial statements and a final report.

• You’ll review the draft and any recommendations.

• A closing meeting may be held to discuss results and answer questions.

How to Make It Smoother

A few practical steps can make your first audit feel a lot more manageable:

• Appoint an audit liaison to manage communication.

• Keep organized documentation year-round.

• Be honest and collaborative — auditors appreciate transparency.

Yes, first-year audits take time. But they also strengthen your systems and inspire donor confidence.

Audits aren’t just about checking boxes. Done right, they foster trust, improve financial practices, and set your organization up for long-term success.

If you’re not sure whether you need an audit (or which level of financial reporting is right for you), we’re here to help.

At Bilotta & Company, we guide nonprofits through every step of the audit process — from deciding if it’s necessary to preparing for your first one.

Looking for clarity, compliance, or confidence? We’ll meet you where you are.