A fiscal audit is a formal examination of an organization's financial records, internal controls, and reporting practices over a specific fiscal year. The goal is to verify accuracy, confirm compliance with applicable regulations, and identify areas where financial management can improve.
Whether you run a nonprofit receiving federal grants, manage a government agency, or operate a private company preparing for external review - fiscal audits provide the documentation and third-party validation that stakeholders require. This guide covers what fiscal audits involve, who is required to have one, the different types available, and the steps organizations should take to prepare.
What Is the Meaning of Fiscal Auditing?
Fiscal auditing is a structured, independent examination of an organization's financial records, internal controls, and overall fiscal management across a designated fiscal period - typically 12 months. The process assesses whether financial practices align with legal, regulatory, and budgetary expectations.
The key areas that auditors typically assess include:
- Budget compliance - Comparing actual expenditures against approved budget allocations
- Revenue and expense tracking - Verifying that all transactions are properly recorded and classified
- Fund balances - Confirming financial stability indicators and reserve levels
- Internal controls - Evaluating risk management processes and segregation of duties
- Regulatory compliance - Checking adherence to applicable laws and grant requirements
A fiscal audit might be conducted by internal audit teams, third-party accounting firms, or government entities - such as during a government fiscal audit or Bureau of Fiscal Services audit. The specific approach depends on the organization's structure, regulatory obligations, and whether it undergoes an annual fiscal audit.
Fiscal Audit vs Financial Audit: What Is the Difference?
While the terms are sometimes used interchangeably, fiscal audits and financial statement audits have distinct focuses and applications. Understanding these differences helps organizations determine which type of audit applies to their situation.
| Aspect | Fiscal Audit | Financial Statement Audit |
|---|---|---|
| Primary Focus | Budget compliance, fund management, and regulatory adherence over a fiscal year | Accuracy and fair presentation of financial statements under GAAP/IFRS |
| Time Period | Fiscal year (which may differ from calendar year) | Typically calendar or fiscal year-end |
| Common Users | Government agencies, grant-funded nonprofits, public institutions | Private companies, publicly traded firms, investor-backed businesses |
| Governing Standards | GAGAS (Yellow Book), Uniform Guidance, state-specific requirements | GAAS, PCAOB standards for public companies |
| Key Deliverables | Compliance findings, budget variance analysis, internal control assessments | Audit opinion on financial statement fairness |
Organizations receiving federal funding often face both requirements. A Single Audit combines elements of both - examining financial statements while also testing compliance with federal program requirements.
Who Needs a Fiscal Audit?
Several types of organizations are legally required to undergo fiscal audits, while others choose to conduct them voluntarily for transparency and accountability.
Government Entities
Federal agencies must comply with the Chief Financial Officers Act and undergo annual audits. State and local governments often have constitutional or statutory audit mandates, with requirements varying by jurisdiction. Many states require annual audits for municipalities above certain revenue thresholds or those managing specific types of funds.
Dimov Audit provides specialized government audit services that meet GASB requirements and address the specific compliance needs of public sector organizations.
Nonprofit Organizations
Nonprofit audit requirements depend on funding sources and organizational size:
- Federal grant recipients - Organizations expending $750,000 or more in federal awards within a fiscal year must obtain a Single Audit under the Uniform Guidance (effective for fiscal years beginning on or after October 1, 2024, the threshold increases to $1,000,000)
- State requirements - Many states impose audit requirements on nonprofits based on revenue levels, typically ranging from $250,000 to $2 million in annual receipts
- Private foundations - Charities registered for public solicitation often face additional state-specific audit requirements
Our nonprofit audit services address the specific compliance challenges that charitable organizations face, from understanding nonprofit audit requirements to preparing for federal program reviews.
Publicly Traded Companies
Companies listed on major stock exchanges must undergo annual audits as mandated by the Securities and Exchange Commission (SEC). These audits follow PCAOB standards and provide investors with reliable financial information. Our SEC compliance services help public companies meet these regulatory obligations.
Organizations Receiving Government Funding
Government funding often triggers audit requirements through contracts or grant agreements. This includes:
- Healthcare providers participating in Medicare or Medicaid
- Educational institutions receiving federal financial aid
- Contractors working on government projects above certain dollar thresholds
- Housing authorities and HUD-funded organizations
Voluntary Audit Situations
Beyond legal requirements, many organizations choose fiscal audits voluntarily:
- Loan applications - Banks and creditors may require audited financial statements for credit facilities
- Board governance - Directors and donors often request audits for financial stewardship assurance
- M&A preparation - Companies preparing for sale, merger, or investment typically obtain audits to provide credible financial information
Does the Bureau of Fiscal Service Conduct Audits?
The Bureau of the Fiscal Service (BFS), part of the U.S. Department of the Treasury, manages the federal government's finances - including payments, collections, and financial reporting.
The BFS does not directly conduct audits. Instead, it plays a supporting role in the fiscal audit process by maintaining the financial data that auditors evaluate. The financial records it compiles support audits led by:
- The Government Accountability Office (GAO)
- Offices of Inspectors General
- Independent audit firms contracted for federal work
When people reference a "Bureau of Fiscal Services audit," they typically mean an audit of the data that BFS prepares - not an audit conducted by the bureau itself. The BFS ensures that government-wide financial records are accurate, consistent, and ready for independent evaluation.
Types of Fiscal Audits
Different audit types serve different purposes depending on who conducts the review and what standards apply.
Internal Fiscal Audit
An internal fiscal audit is conducted by an organization's in-house audit team or finance department. These audits assess internal controls, verify policy compliance, and flag irregularities before external reviewers arrive. Internal audits play a critical role in early detection of issues and effective fiscal audit preparation.
External Fiscal Audit
External fiscal audits are performed by independent auditors - typically licensed CPA firms. These audits provide an objective assessment of financial statements and verify that records comply with established standards like GAAP (Generally Accepted Accounting Principles) or GASB (Governmental Accounting Standards Board).
Government Fiscal Audit
Government fiscal audits apply to public agencies and organizations receiving federal funding. These audits typically follow GAGAS (Government Auditing Standards, also known as the Yellow Book) or Uniform Guidance rules.
For organizations expending $750,000 or more in federal funds, a Single Audit is required. This combines financial statement review with federal awards compliance testing - examining both the accuracy of financial records and adherence to program-specific requirements.
Our Yellow Book audit services help organizations meet the specific requirements of government auditing standards.
How to Prepare for an Annual Fiscal Audit
Proper fiscal audit preparation reduces delays, minimizes stress, and demonstrates accountability to auditors and stakeholders. Starting early gives your team time to identify and resolve issues before the formal review begins.
1. Organize Financial Documents
Collect and organize all relevant records well before the audit begins:
- Bank statements and reconciliations for the entire fiscal year
- General ledger and trial balances
- Payroll reports and tax filings
- Receipts, invoices, and expense documentation
- Grant agreements and supporting documentation
- Board minutes and financial committee records
- Prior year audit reports and management letters
2. Review Internal Controls
Evaluate your organization's systems and document how they function:
- Segregation of duties - Different people should authorize, record, and custody assets
- Authorization workflows - Clear approval processes for expenditures and commitments
- Oversight responsibilities - Defined roles for financial monitoring across departments
- Access controls - Appropriate restrictions on financial systems and data
3. Reconcile Accounts
Ensure all internal records match external statements and reports. Early reconciliation helps locate and resolve discrepancies before auditors arrive. Pay particular attention to:
- Bank account reconciliations
- Accounts receivable aging reports
- Accounts payable verification
- Fixed asset schedules
- Restricted fund balances (for nonprofits)
4. Address Prior-Year Findings
If the previous audit revealed issues or recommendations, document the steps taken to correct them. Auditors will ask about progress on prior findings, and demonstrating improvements shows commitment to financial management.
5. Conduct a Pre-Audit Review
Consider running a mock audit with internal staff or an external advisor. This practice run identifies gaps, missing documents, or control weaknesses before the official audit begins.
6. Communicate With Your Auditor
Establish clear expectations before fieldwork starts:
- Define the audit timeline and key milestones
- Identify roles and points of contact on both sides
- Set up secure file-sharing systems
- Schedule the entrance conference and planning meetings
Why Fiscal Audits Matter
A fiscal audit is more than a compliance checkbox - it serves strategic purposes that benefit organizations of all types.
- Confirms regulatory compliance - Verifies adherence to financial laws, grant requirements, and industry regulations
- Builds stakeholder trust - Provides funders, investors, and board members with independent validation
- Maintains funding eligibility - Meets requirements for government grants, contracts, and loan agreements
- Identifies operational improvements - Reveals inefficiencies, outdated procedures, or areas at risk
- Supports financial stability - Creates documentation that helps with planning and decision-making
- Strengthens internal accountability - Reinforces proper procedures throughout the organization
A well-conducted annual fiscal audit can serve as both a compliance tool and a roadmap for better financial management.
Get Help With Your Fiscal Audit
Whether you are preparing for your first audit or looking to improve the process for next year, Dimov Audit provides the guidance organizations need. Our team works with government agencies, nonprofits, and private companies across all 50 states to deliver accurate, timely audit services.
Contact our team to discuss your audit requirements and timeline. We can help you understand which type of audit applies to your organization and develop a preparation plan that reduces stress and improves outcomes.
Frequently Asked Questions
What is the meaning of fiscal auditing?
Fiscal auditing is the structured review of an organization's financial activity, internal controls, and reporting practices over a fiscal year. The purpose is to assess compliance with budgets, regulations, and accounting standards while identifying areas for improvement.
What is the difference between a fiscal audit and a financial audit?
A fiscal audit focuses on budget compliance, fund management, and regulatory adherence over a fiscal period - common for government and grant-funded organizations. A financial statement audit focuses on whether financial statements fairly present an organization's financial position under GAAP. Some organizations require both types of review.
Does the Bureau of Fiscal Services do audits?
No. The Bureau of the Fiscal Service maintains federal financial records but does not conduct audits. It prepares data that oversight agencies like the GAO and Offices of Inspectors General use during their audit work.
Who is required to have a fiscal audit?
Government entities, nonprofits receiving federal grants of $750,000 or more (increasing to $1,000,000 in 2024), publicly traded companies, and organizations with specific state or contractual requirements must undergo fiscal audits. Many other organizations choose audits voluntarily for credibility and governance purposes.
How do you prepare for an annual fiscal audit?
Start by organizing financial documents, reviewing internal controls, reconciling accounts, and addressing any prior-year findings. Conduct a pre-audit review to identify gaps, and establish clear communication with your auditor before fieldwork begins.
What is the $750,000 threshold for Single Audits?
Non-federal entities that expend $750,000 or more in federal awards within a fiscal year must obtain a Single Audit under the Uniform Guidance. For fiscal years beginning on or after October 1, 2024, this threshold increases to $1,000,000.
How long does a fiscal audit take?
Timing varies based on organization size and complexity. Small organizations may complete fieldwork in a few days, while larger entities or those with multiple federal programs may require several weeks. Audit reports are typically due within nine months of fiscal year-end for Single Audits.
What happens if a fiscal audit finds problems?
Auditors document findings in the audit report, categorizing issues by severity (material weakness, significant deficiency, or compliance finding). Organizations must develop corrective action plans to address findings, and serious issues may affect funding eligibility or require repayment of questioned costs.
