What a Nonprofit Audit Costs, the Single Audit Threshold, and When a Review or the Form 990 Alone Satisfies the Funder

Nonprofit organizations audit more often than their size warrants, because the word appears in grant agreements and bylaws written by people who meant "financial statements." The levels of service and their costs, as for any organization (the small-business audit guide): a compilation (statements assembled from the books, no assurance — low thousands for a small nonprofit), a review (analytical procedures and inquiries, limited assurance — mid four figures to about ten thousand), and an audit (testing, confirmations, controls evaluation, an opinion — from the high four figures for a small, simple organization with clean books to the mid five figures for a mid-sized organization with restricted funds, multiple programs, and grant compliance testing), with the nonprofit-specific work that raises the fee above a comparable business's: net asset classification (with and without donor restrictions, and the release of restrictions), contribution revenue recognition (conditional versus unconditional promises, in-kind contributions and their valuation), functional expense allocation (program, management and general, fundraising — the statement the Form 990 and the funders scrutinize), grant compliance and restricted-fund tracking, and — where the organization has them — endowments and split-interest agreements. The single audit: an organization that expends federal awards above the threshold in its fiscal year (US$1,000,000 for fiscal years beginning on or after October 1, 2024 — raised from the prior US$750,000) must have a single audit under the Uniform Guidance — the financial statement audit plus an audit of compliance with the requirements of its major federal programs, the schedule of expenditures of federal awards, and the reporting on internal control over compliance — an engagement priced above a standard nonprofit audit by the compliance testing (the fee scaling with the number and complexity of major programs), performed by a firm with single-audit experience, and filed with the Federal Audit Clearinghouse; an organization below the threshold has no single audit requirement regardless of what a program officer says, and one just above it should know the threshold before accepting the grant that crosses it. The requirement map, by source. Federal: the single audit threshold above; below it, individual federal awards may carry their own financial reporting terms but not a single audit. State: most states require charitable organizations soliciting in the state to register and to file financial statements with the registration — with audit thresholds by gross revenue or contributions that vary widely (some states require an audit above a few hundred thousand dollars of contributions, others above a million or two, and several require only a review or a compilation at lower tiers) — so a multi-state fundraiser meets the strictest state's threshold, and the state matrix is the first place to look. Funders: foundation and government grant agreements often require "audited financial statements" — a term the organization should read literally and then question (many funders accept a review, or the Form 990, for grantees below a size; the requirement is negotiated at the grant agreement stage, not after). Lenders: a nonprofit with a line of credit or a mortgage faces the lender's covenant, which frequently accepts reviewed statements below a facility size. Bylaws and boards: many organizations' bylaws mandate an annual audit because a founding board wrote it in — a requirement the board can amend once it understands the levels of service. The Form 990 as the alternative: every exempt organization above the smallest size files an annual information return in the 990 series — the 990-N postcard for gross receipts normally at or below US$50,000, the 990-EZ for gross receipts under US$200,000 and assets under US$500,000, the full Form 990 above those, and the 990-PF for private foundations — and the full Form 990 is a substantial financial disclosure (statements of revenue, expenses by function, balance sheet, program descriptions, governance, compensation) that is public, that many funders review in place of audited statements for smaller grantees, and that costs a fraction of an audit to prepare (from the low thousands for a simple organization to more for one with complex programs, related entities, and Schedule A through Schedule R disclosures); an organization whose only "audit" requirement is a funder's habit may satisfy it with the 990 and a review. The cost drivers beyond size: restricted funds and grants (each is a tracking and testing item); the number of programs (functional allocation complexity); in-kind contributions (valuation testing); the books' condition (the finding that raises every nonprofit's fee — a bookkeeper unfamiliar with net asset accounting produces statements the auditor restates before testing); first-year audits; multiple locations or related entities; and the single audit's major program count. How to lower it: a bookkeeper or accountant who knows nonprofit accounting (net assets, releases, functional allocation — the monthly close done right is half the audit fee); a prepared-by-client package; the same firm year over year; the level of service actually required rather than assumed; and the requirement conversation with funders and the board before the engagement. The advice: build the requirement map (state thresholds for every state you solicit in, each funder's actual written term, the federal expenditure total against the single audit threshold, the lender's covenant, the bylaws), determine the highest level anyone genuinely requires, ask whether a review or the 990 satisfies the rest, and — for organizations approaching the single audit threshold — decide whether the grant that crosses it is worth the engagement it triggers.

Key takeaways

• Costs by level: compilation (low thousands), review (mid four figures to about ten thousand), audit (high four figures for a small clean organization to mid five figures with restricted funds, multiple programs, and grant testing); single audit above that, scaling with major programs.
• The single audit threshold is US$1,000,000 of federal expenditures in the fiscal year (for fiscal years beginning on or after October 1, 2024); below it, no single audit regardless of what a program officer implies.
• The requirement map has five sources: federal (single audit), state charitable registration thresholds (widely varying — meet the strictest state you solicit in), funder grant terms (read literally, then negotiate), lender covenants, and bylaws (amendable).
• The Form 990 is a substantial public disclosure that many funders accept in place of audited statements for smaller grantees — at a fraction of the cost; the 990-N, 990-EZ, and full 990 apply by gross receipts and assets.
• Nonprofit-specific cost drivers: net asset classification, contribution recognition, functional expense allocation, restricted funds, in-kind valuation, and books kept by someone unfamiliar with nonprofit accounting.
• Lower it: nonprofit-competent bookkeeping, a prepared-by-client package, the same firm annually, the level actually required, and the funder conversation before the engagement.

Building the requirement map

States where you solicit → each state's audit/review threshold → the strictest. Federal expenditures this fiscal year → against the single audit threshold. Each funder's written requirement → and whether a review or the 990 is accepted (ask). Lender covenant → level accepted below the facility size. Bylaws → what they mandate and whether the board will amend. The highest genuine requirement sets the engagement; everything below it is satisfied by that engagement or by the 990. One page, revisited annually, and the most common finding is that the audit was for nobody.

Worked example

A community arts organization with US$900,000 of revenue, two foundation grants, US$300,000 of state arts council funding (state, not federal), and bylaws requiring an annual audit has bought a mid-five-figure audit every year. The requirement map: no federal awards (no single audit); the state's charitable registration threshold requires a review, not an audit, at its revenue; both foundations, asked in writing, accept reviewed statements plus the Form 990 for grantees under US$1 million; the state arts council requires the 990 and a financial statement (level unspecified — a review satisfies); the bylaws are the only source requiring an audit. The board amends the bylaws to require a review with an audit at the board's discretion; the organization engages a review (mid four figures) plus the full Form 990 it was already filing; the annual saving is most of the prior audit fee, redirected to programs, with no funder or regulator having asked for the audit in the first place. The contrasting organization across town: a housing nonprofit that accepted a US$1.2 million federal grant mid-year without checking the threshold — the single audit is now required, the firm it used has no single-audit experience and must be replaced, and the compliance testing on two major programs adds a five-figure increment to an audit that was itself new. Both organizations needed the requirement map; one built it before the engagement.

Official sources

The IRS explains that most tax-exempt organizations must file an annual information return in the Form 990 series, with the form (990-N, 990-EZ, 990, or 990-PF) determined by the organization's gross receipts and assets. — Internal Revenue Service, Annual filing and forms for exempt organizations, https://www.irs.gov/charities-non-profits/annual-filing-and-forms

The federal Uniform Guidance requires a non-federal entity that expends federal awards above the threshold in its fiscal year to have a single audit or program-specific audit conducted for that year. — Office of Management and Budget, 2 CFR Part 200 Subpart F — Audit Requirements, https://www.ecfr.gov/current/title-2/subtitle-A/chapter-II/part-200/subpart-F

Practitioner note

Nonprofits audit for the word in the bylaws and the habit of the program officer, and our first engagement is the requirement map: every state's threshold, every funder's written term, the federal expenditures against the single audit line, the lender, and the bylaws. The most common result is that the audit was for nobody and a review plus the Form 990 satisfies everyone; the second most common is an organization about to cross the single audit threshold on a grant it hasn't priced the audit into.

See also: For related guidance, see deducting start-up costs; and browse every small business tax guide, by situation.

Next step

Fairlight handles nonprofit assurance readiness — the requirement map, level-of-service and Form 990 strategy with funders and the board, nonprofit-competent bookkeeping with net asset and functional allocation, and single audit preparation where federal expenditures require it. See pricing or book a call.