Nonprofits exist to serve the public good and are therefore often held to higher standards than their for-profit counterparts, who typically are not required to make public their tax returns, financial performance information, and financial statements. One of the key components of this "higher standard" is having an external, independent audit of the nonprofit's finances conducted each year. An audit not only attests to the accuracy of the financial information, it often helps reassure donors that the organization's funds are being spent appropriately and that the organization has a sufficient internal control structure to prevent misuse of funds. However, not every nonprofit needs to undergo an audit.
Typically, the requirement to have an external, independent audit depends on your organization's locality, meeting certain thresholds, donor requirements, Board mandates, or a combination of these criteria. Below is information on when an audit of your nonprofit is typically required:
- At the country-level. Some countries require an audit regardless of meeting any thresholds or satisfying any criteria. In the United States, the Internal Revenue Service (IRS) does not require an audit.
- At the state-level. In the United States, some states require nonprofits to submit copies of audited financial statements in order for the organization to engage in fundraising activities. In addition, some states require audits once the organization receives any state or federal funding or once the organization's revenue surpasses a certain amount. The National Council for Nonprofits maintains an updated listing of audit requires by state.
- Required by donors. Some donors and private foundations may also require an independent audit. In addition, organizations receiving funds from state governments and/or the US federal government may be required to submit an external, independent audit. In the United States, organizations the receive more than US$750,000 from the federal government in a single year are required to undergo an A-133 audit.
- Board and/or organizational mandates. As part of their fiduciary responsibility, the Board of Directors of a nonprofit may also require the organization to undergo an external audit. In addition, some organizations may voluntarily undergo audits to satisfy internal mandates (including by-laws) as a general control over financial reporting and accuracy.