At some point in a nonprofit’s life, the word audit shows up in a board meeting—and almost immediately, tension fills the room.

Do we need one?
Are we exposed?
Is this going to uncover something we didn’t know?
Can we even afford it?

After more than three decades working with nonprofits—as a CPA, as an external auditor of nonprofits, in nonprofit CFO leadership, and now leading a team of Fractional Nonprofit CFOs—I can tell you this with confidence:

Most fear around audits isn’t about money.
It’s about uncertainty.

So let’s start by removing the mystery.

What Is a Nonprofit Audit—Really?

In the nonprofit world, an audit refers to a financial statement audit performed by an independent CPA firm.

The purpose of that audit is not to inspect every transaction or hunt for wrongdoing. Instead, the auditor’s job is to issue an opinion—a formal, professional conclusion about whether your financial statements are presented fairly and in accordance with Generally Accepted Accounting Principles (GAAP).

That opinion appears as a one-page letter at the front of your audited financial statements.

An audit provides reasonable assurance, not absolute certainty. It’s a structured process that evaluates financial records, accounting practices, and supporting documentation to determine whether the financial story being told is accurate and reliable.

Why Nonprofits Choose—or Need—Audits

There are two broad reasons nonprofits pursue audits: requirement and strategy.

When an Nonprofit Audit Is Required

Your nonprofit may be required to have an audit if any of the following apply:

• A bank requires audited financial statements as part of a loan agreement
• Your bylaws or governance documents mandate an annual audit
• You receive federal funding above established thresholds, triggering a Single Audit
• A foundation, granting agency, or accrediting body requires audited financials
• Your state imposes audit requirements based on revenue or funding sources

In these cases, the question isn’t if you should have an audit—it’s how to prepare well.

When an Audit Is Strategic

Even when not required, many nonprofits choose to pursue audits voluntarily.

Why?

Because audits create credibility.

An independent audit:

• Builds trust with donors and grantors
• Signals strong financial stewardship
• Demonstrates transparency and accountability
• Strengthens internal financial discipline
• Provides an external perspective on financial practices

For organizations growing in size, complexity, or visibility, an audit often becomes part of building long-term sustainability.

The Real Costs—and Tradeoffs—of Audits

Audits are not inexpensive, and they are not effortless.

They require:

• Stronger accounting systems
• Clear documentation and internal controls
• More staff time and coordination
• A higher level of financial readiness

Audit fees vary widely by size and complexity, but it’s increasingly difficult to find a full financial statement audit at a low cost—especially in today’s environment.

That doesn’t mean audits aren’t valuable.
It means timing matters.

When Should a Nonprofit Consider an Audit?

One of the most helpful frameworks I’ve seen comes from guidance long shared by the Evangelical Council for Financial Accountability (ECFA), which encourages nonprofits to grow into audit readiness rather than rushing into it.

A simplified way to think about it:

• Smaller nonprofits may start with a compilation, which offers limited assurance
• As revenue grows, a financial statement review can be a meaningful next step
• At higher revenue levels—or when required—an audit becomes appropriate

The goal is not to jump to the highest level of scrutiny before systems are ready, but to match the level of assurance to the organization’s maturity and risk profile.

Audits Are Not About Fear—They’re About Readiness

The healthiest nonprofits don’t approach audits as a threat.

They approach them as a checkpoint.

Audits work best when:

• Financial systems are consistent
• Board oversight is active and informed
• Internal controls are intentional
• Documentation is routine, not reactive

When those pieces are in place, audits become far less intimidating—and far more valuable.

What Comes Next

If your nonprofit is headed toward an audit—or you’re starting to wonder if one may be on the horizon—you’ll want to continue this conversation.

In the next post in this audit series, we’ll walk through five red flags that cause auditors to dig deeper—the kinds of issues that don’t always mean something is wrong, but almost always increase stress, scrutiny, and audit costs if they aren’t addressed early.

Be sure to watch for that follow-up if audits are becoming a real possibility for your organization.

And while you’re waiting for that deeper dive, there’s something you can do right now that will put your nonprofit in a much stronger position—whether an audit is required this year or not.

I recommend watching our YouTube playlist titled Internal Controls for Small Nonprofits.

Internal controls are one of the first things auditors assess, and they’re also one of the most common areas where small and growing nonprofits struggle—not because leaders don’t care, but because systems were never intentionally designed.

That playlist walks through how to create simple, practical controls that reduce risk, protect your team, and make audits far less intimidating.

You can begin working through that playlist now, and then come back for the next post in this series, where we’ll focus on preparing for an audit with clarity, confidence, and far less fear.