INSIGHT

What is a nonprofit audit?

Shannon Winter • March 17, 2025

Services: Audit Industries: Nonprofit

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As a nonprofit organization you’re focused on serving your mission and making a difference in the communities you support. While you are focused on that mission you also need to make sure that you provide transparency and accountability for your donors, board, or others, and an audit helps you demonstrate your financial position. 

At BPM we not only are a traditional audit and tax firm, but we also understand the unique operations and challenges that nonprofits face. It is with that understanding that we created a comprehensive guide to help nonprofit organizations navigate what a nonprofit audit is and how it may help or benefit your organization. 

Understanding nonprofit audits 

A nonprofit audit is a thorough examination of your organization’s financial records, reports, transactions, policies, and procedures. 

The objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. We obtain an understanding of internal controls and communicate any significant findings and certain internal control-related matters to those charged with governance. 

Different types of nonprofit audits 

Not all audits are created equally. Here are the main types you might encounter: 

• Independent financial audit: Conducted by a third-party auditor who obtains an understanding and reasonable assurance about your financial statements, transactions, accounting practices, and internal controls to provide an objective perspective. 
• Internal financial audit: Performed by your management team to identify opportunities for improvement in your financial strategy. 
• Compliance audit: Reviews your organization’s adherence to regulations set by various government levels and your internal policies. 
• Operational audit: Assesses your nonprofit’s internal systems, productivity, staffing, and management practices to determine strengths and areas for improvement. 

Does your nonprofit need an audit? 

You might be wondering whether your organization should conduct an audit. There are several scenarios where an audit may be required: 

• Your organization’s bylaws specify regular audits 
• Your organization receives funding from federal sources or other granting agency that require an audit for continued funding 
• State laws mandate audits for nonprofits above certain funding thresholds 
• A grant application specifically requests an audit report 

Even if you’re not legally required to undergo an audit, there are compelling reasons to consider one. We’ve seen firsthand how audits can strengthen nonprofit organizations and build donor confidence. 

4 benefits of having an audit 

While preparing for an audit requires effort, the benefits typically outweigh the costs: 

1. Clear improvement opportunities: Audits help identify ways to improve your policies and procedures, leading to more efficient processes. 

2. Increased transparency: Communicating audit results with supporters demonstrates your commitment to financial responsibility. 

3. Enhanced accountability: Regular audits hold your organization to consistent standards for financial reporting and compliance. 

4. Visibility boost: The audits are publicly available making it easier for review by donors and watchdog groups. 
    

A nonprofit audit timeline 

Understanding the audit timeline can help you plan effectively (note that timelines can vary depending on the size of the organization, its finance team and other complexities): 

• Select an auditor: 4 to 12 weeks 
• Prepare for your audit: 4 to 6 weeks
• Conduct the audit: 6 to 10 weeks 
• Incorporate audit recommendations: Ongoing 

We recommend completing your financial audit before filing your informational return. The tax form specifically asks whether an audit was completed. If your organization is required by the state to have an audit and you answer ‘no’ to this question, it could raise a red flag with tax authorities and potentially jeopardize your nonprofit’s tax-exempt status. 

Choosing the right nonprofit auditor 

Your audit results will be most beneficial if you select an auditing firm with experience in the nonprofit sector. Here’s how to find the right partner: 

• Research potential firms online 
• Ask other nonprofits in your network for recommendations 
• Issue a request for proposals (RFP) to compare top candidates
• Interview potential auditors, allowing for a mutual exchange of questions and giving them time to review your organization. 

“BPM works collaboratively with organizations to complete their audit no matter if it is the first time the organization has had an audit or they have been established and performing multiple audits. We work as a team to help complete the desired results and timeframe.” – Shannon Winter, Partner and Nonprofit Co-Leader 

Preparing for your nonprofit audit 

Preparation is key to a smooth audit process. Your auditor will typically provide a Provided by Client (PBC) list, which may include: 

• Bank and investment statements 
• Details of grants and donations received 
• Payroll information 
• Board meeting minutes 
• Tax documents 
• Fiscal policies and procedures 
• Detailed reconciliation 
• Support for accounts 

Beyond gathering these documents, here are some additional preparation steps: 

• Reconcile all bank accounts 
• Address uncleared transactions
• Review and update your vendor list
• Check for unpaid membership dues
• Deposit any undeposited funds 
• Look for and correct coding errors 
• Verify proper capitalization 
• Review accounts receivable and payable 

Note: You will need to have source documents available during the audit, including vendor invoices, check copies, payment support, and examples. 

How BPM can help with your nonprofit audit 

At BPM, we understand the business of nonprofits because we believe in your purpose. Our assurance professionals have made providing audit and financial services to nonprofit organizations a priority for decades.  

We serve the full range of nonprofit corporations organized as tax-exempt under Internal Revenue Code Section 501(c), including: 

• Foundations 
• Charitable and religious organizations 
• Social service organizations 
• Performing arts institutions 
• Educational institutions 

Our comprehensive nonprofit audit services include: 

• Assurance and accounting: Financial statement audits under GAAP, accounting reviews, and compilations. We also complete Single Audits under Uniform Guidance and Yellow Book requirements for organizations with federal or governmental funding. 
• Tax services: Assistance with IRS Forms 990 and related schedules, state sales and excise taxes, and filings for property tax exemptions. 
• Development and fundraising advisory: Guidance on creating new revenue streams, establishing charitable giving programs, and implementing financial analysis procedures. 
• Consulting services: Support for setting up accounting systems, implementing budgeting processes, developing strategic plans, evaluating internal controls, and more. 

Taking the next step 

Remember that an audit is, at its core, an opportunity to learn and improve. Even if your audit report identifies areas for improvement, these insights will ultimately strengthen your organization and help you better serve your mission. 

Ready to discuss your nonprofit’s audit needs? Our nonprofit team at BPM is here to help. We bring decades of nonprofit experience, a commitment to excellence, and a deep understanding of the challenges you face. 

Contact BPM today to learn how our dedicated CPAs can support your nonprofit’s financial health and help you make an even greater impact in the communities you serve. Together, we can ensure your organization’s financial practices support your important mission for years to come.