Nonprofit Audit Guide: Ensure Financial Transparency Today

Nonprofits operate under immense scrutiny—from the IRS, grantmakers, government agencies, and even the public. Unlike for-profit companies, nonprofits must not only manage their finances accurately but also prove that every dollar supports their mission. This is where a professional nonprofit audit becomes invaluable.

A well-executed audit provides transparency, builds donor confidence, and ensures regulatory compliance. For many nonprofit leaders, however, the audit process can feel overwhelming. That’s why working with a specialized audit firm like Dimov Audit can make all the difference.

Here’s how this nonprofit audit guide will help you prepare, understand what to expect, and ensure transparency throughout the process.

What Is a Nonprofit Audit?

A nonprofit audit is a formal, independent examination of a nonprofit’s financial records and internal controls. The goal is to verify the accuracy of financial statements and ensure compliance with applicable laws and regulations.

Here’s how a nonprofit audit stands apart:

• External and Independent: Conducted by a third-party CPA firm, not internal staff.
• Objective and Verifiable: Offers credibility to funders, watchdog agencies, and regulatory bodies.
• Structured for Accountability: Focuses not only on financials but also on governance and controls.

When Is a Nonprofit Audit Required?

Not every nonprofit is legally required to undergo an audit, but many do either by regulation or necessity. Here’s when an audit becomes mandatory or strongly recommended:

• Federal Funding Over $750,000: Triggers a Single Audit under the Uniform Guidance.
• State Laws: Many states require audits based on revenue thresholds (e.g., California, New York).
• Grant or Donor Requirements: Some foundations or government agencies require audited financials to release or renew funding.
• Board Governance: Some boards mandate audits as part of fiduciary responsibility.

Whether required or voluntary, audits are often essential to long-term credibility and funding success.

Benefits of a Nonprofit Audit

A thorough nonprofit audit is more than a compliance checkbox. It can create strategic value by reinforcing transparency and financial health. Here’s how:

• Builds Donor Confidence: Audited financials give donors assurance that funds are used appropriately.
• Improves Financial Accuracy: Identifies errors or misstatements before they become serious issues.
• Strengthens Internal Controls: Reveals weaknesses in processes or systems, prompting corrective action.
• Enhances Board Oversight: Helps boards make informed, mission-aligned decisions.
• Supports Future Growth: A clean audit can attract larger grants and new funding opportunities.

What to Expect from a Nonprofit Audit

Nonprofit audits are detailed, but the right preparation makes the process smoother. Here’s how a typical audit engagement unfolds:

• Planning Phase: The auditors learn about your organization’s structure, funding sources, and accounting systems.
• Fieldwork: Auditors perform detailed testing of transactions, processes, and documentation.
• Internal Control Review: The firm assesses your control environment to ensure assets are safeguarded.
• Draft Review: Auditors share preliminary findings and recommendations with leadership.
• Final Report: Issued with an audit opinion, which can be unqualified (clean), qualified, or adverse.

Dimov Audit works closely with nonprofit clients at every step, ensuring clarity and minimal disruption.

Key Documents You’ll Need

Being audit-ready requires advance preparation. Here’s a list of essential documents most nonprofits should have on hand:

• Financial Statements: Statement of Financial Position, Statement of Activities and Changes in Net Assets, Statement of Functional Expenses, and Statement of Cash Flows.
• General Ledger: Detailed transaction history for the audit period.
• Bank Reconciliations: Monthly statements with reconciliations.
• Grant Agreements: Contracts for federal, state, or private funding.
• Board Meeting Minutes: Documentation of decisions made by leadership.
• Internal Policies: Financial procedures, expense approval workflows, and segregation of duties.
• IRS Filings: Form 990, 1023, and any IRS correspondence.
• Payroll Records: W-2s, 1099s, and employee compensation documentation.

Having these ready helps ensure the audit is efficient and accurate.

What Makes Nonprofit Audits Unique?

Auditing a nonprofit is not the same as auditing a for-profit enterprise. Here are some key differences:

• Revenue Streams: Donations, grants, and restricted funds require special treatment under GAAP.
• Net Asset Classification: Must report with or without donor restrictions.
• Functional Expense Allocation: Expenses must be divided into program, administrative, and fundraising categories.
• IRS Oversight: Compliance with Form 990 disclosures is critical.
• Public Scrutiny: Financials are often reviewed by watchdog groups like Charity Navigator or Guidestar.

Dimov Audit’s team has deep experience navigating these nonprofit-specific challenges and ensuring accurate, compliant reporting.

How Dimov Audit Supports Nonprofits

Dimov Audit has performed hundreds of audits for nonprofit organizations, from small local charities to complex, grant-funded national operations. Here’s how our firm delivers exceptional value:

• Regulatory Expertise: Our team is fully Yellow Book compliant and experienced with Single Audits under Uniform Guidance.
• Donor-Focused Approach: We understand the importance of meeting donor expectations and maintaining funding eligibility.
• IRS Knowledge: With Enrolled Agents and experienced CPAs on staff, we help nonprofits stay fully compliant with IRS regulations.
• Customized Delivery: Each audit is tailored to your organization’s risk level, size, and operational complexity.
• Professional Guidance: Nonprofit directors work directly with senior audit professionals—no handoffs or entry-level teams.
• Transparent Communication: We keep leadership informed and supported from start to finish.

We don’t just check boxes—we help nonprofit leaders understand their financial health and improve governance.

Tips to Prepare for a Smooth Audit

Preparation is key to minimizing stress during an audit. Here’s how nonprofit leaders can get ready:

• Close Your Books Early: Aim to finalize financials at least 2–4 weeks before fieldwork.
• Assign a Point Person: Designate a staff member to coordinate audit responses.
• Organize Files Digitally: Use cloud storage to share documents securely and quickly.
• Review Prior Year Findings: Address any past issues or internal control weaknesses.
• Conduct a Pre-Audit Checklist: Review documents, approvals, and reconciliations internally before auditors arrive.

Working with Dimov Audit ensures that you’re not navigating these steps alone—we’ll guide you at every phase.

Single Audits and Federal Compliance

If your organization receives substantial federal funding, you may be subject to a Single Audit under the Uniform Guidance (2 CFR Part 200). Dimov Audit specializes in this highly regulated process, which includes:

• Schedule of Expenditures of Federal Awards (SEFA)
• Compliance Testing for Major Programs
• Internal Control and Risk Assessments
• Corrective Action Plans

These audits are often reviewed by federal oversight agencies, making accuracy and experience critical. We ensure every requirement is met with precision.

Why Nonprofit Leaders Choose Dimov Audit

Trust and accountability are the cornerstones of every successful nonprofit. When transparency matters—whether to retain tax-exempt status, qualify for grants, or assure stakeholders—Dimov Audit is the partner you can rely on.

Here’s what nonprofit clients value most:

• Proven Track Record: 500+ audits completed across diverse sectors.
• Experienced Team: Professionals with an average of 14+ years in audit and tax.
• Regulatory Authority: PCAOB-registered, Yellow Book compliant, and peer-reviewed by the AICPA.
• Ethical Standards: A+ rating from the Better Business Bureau.
• Scalable Services: We support nonprofits of all sizes—from local grassroots to national networks.

When the stakes are high, you need auditors who understand both your mission and the regulations that shape it.

Take the Next Steps with a Consultation

A nonprofit audit doesn’t have to be stressful. With the right partner, it becomes a valuable tool for strengthening accountability and ensuring mission impact. Dimov Audit combines regulatory expertise, industry knowledge, and client-first service to make your audit experience clear, compliant, and confidence-building.

If your organization is preparing for its next audit—or undergoing one for the first time—reach out to Dimov Audit for a consultation. We’ll help you stay audit-ready, donor-trusted, and financially transparent.