How Much Does an Audit Cost for a Nonprofit?
Gain clarity on nonprofit audit costs. Understand the variables that shape expenses and how to effectively plan your budget.
A nonprofit audit is an independent, comprehensive review of an organization’s financial records, internal controls, and procedures performed by a Certified Public Accountant (CPA). Its purpose is to assess financial health, ensure compliance with federal, state, and generally accepted accounting principles (GAAP), and confirm funds are used in accordance with the nonprofit’s mission. While the Internal Revenue Service (IRS) rarely mandates audits for nonprofits, various external entities often require them.
Many states and some local governments have laws requiring audits once a nonprofit reaches certain revenue or expenditure thresholds. Grantors, foundations, and lenders frequently require audited financial statements as a condition for funding or loans, providing assurance of financial integrity and responsible management. An audit also demonstrates transparency and accountability to donors and other stakeholders, enhancing credibility and trust.
Factors Influencing Audit Cost
The cost of a nonprofit audit varies significantly based on factors reflecting the time, complexity, and specialized expertise required.
The size and operational complexity of a nonprofit directly influence audit costs. Organizations with higher annual revenues, greater asset values, and more employees generally incur higher audit fees due to more financial transactions. Complex program structures, such as those in multiple locations, managing diverse activities, or engaging in international operations, also increase audit scope and cost.
The quality of a nonprofit’s financial records and internal controls substantially impacts audit expenses. Well-maintained, accurate, and organized records, coupled with robust internal controls, streamline the audit process, reducing verification time. Conversely, disorganized books, a lack of clear documentation, or weak internal controls prolong fieldwork and necessitate more extensive testing, increasing costs.
The type and source of funding a nonprofit receives can significantly impact audit costs, particularly for those with federal awards. Nonprofits expending $750,000 or more in federal funds within a fiscal year typically require a Single Audit. This specialized audit is more extensive than a basic financial statement audit, evaluating compliance with specific federal regulations and grant requirements, leading to higher fees. Beginning with fiscal years ending September 30, 2025, the Single Audit threshold will increase to $1 million of federal funds expended.
The specialized nature of a nonprofit’s sector can also affect audit pricing. Niche areas may require auditors with specific expertise in complex accounting standards or regulatory environments, commanding higher rates. For example, organizations with complex balance sheets, numerous restricted grants, or employee retirement income security plans (ERISA) may require more detailed examination, impacting the fee.
Geographic location is another factor, as audit fees vary by region or city due to differences in cost of living and market competition. Fewer qualified CPA firms in an area can drive prices upward. Similarly, the auditing firm’s size and reputation influence costs. Larger firms with extensive nonprofit experience may charge higher fees than smaller, local firms.
Understanding the Audit Proposal Process
Engaging an audit firm begins with a structured proposal process, requiring the nonprofit to present specific information to prospective auditors. This ensures firms provide accurate fee estimates. A Request for Proposal (RFP) is a formal document outlining the nonprofit’s needs and inviting qualified accounting firms to submit proposals.
The RFP should include key financial and operational information for auditors to assess the engagement. This encompasses:
Organizational history and mission.
Prior years’ audited financial statements (if available).
Current year financial statements (balance sheet and income statement).
Significant grants or funding sources, especially federal awards that might trigger a Single Audit.
Organizational structure, key financial personnel, and descriptions of internal controls and accounting systems.
Desired audit timeline, including deadlines for fieldwork and report delivery.
Once proposals are received, the nonprofit should carefully review each submission. Aspects to evaluate include the proposed scope of services, fee structure, firm’s experience with similar nonprofits, and engagement team qualifications. Checking client references and reviewing the firm’s latest peer review report provides insights into quality control. This review helps ensure the selected firm aligns with needs and provides the best value.
Typical Cost Benchmarks
Audit costs for nonprofits vary widely, but general benchmarks guide budgeting. A basic financial statement audit for a small nonprofit (under $500,000 annual revenues) can range from $5,000 to $20,000. For mid-sized organizations ($500,000 to $5 million revenues), fees typically fall within $10,000 to $30,000. Larger nonprofits (exceeding $5 million annual revenue) might expect costs starting from $25,000, potentially reaching $50,000 or more, depending on complexity.
A significant factor increasing audit costs is the Single Audit requirement, applying when a nonprofit expends $750,000 or more in federal funds in a fiscal year. This audit involves detailed compliance examination, making it more expensive than a standard financial statement audit. Single Audits can add thousands to tens of thousands of dollars to the total audit fee, reflecting increased scope.
These figures are estimates; actual costs depend on factors like complexity, financial record quality, and funding sources. The accuracy of information provided during the proposal process also influences the final quoted fee. Obtaining tailored proposals based on comprehensive organizational data is essential for a precise cost assessment.