Many nonprofit leaders feel uneasy when a funder demands an audit or financial review; it can feel like a compliance trap. But it doesn’t have to be overwhelming. In this guide, we break down why funders make this request, how audits and reviews differ, and exact steps you can take now to prepare confidently. If your funder just requested a nonprofit audit or review, you’re not alone. Many nonprofits eventually reach this stage as they grow or win larger grants. While the words “audit” or “review” may sound intimidating, understanding the process can help your organization stay in compliance.

A Real Example

Consider a mid-sized nonprofit serving families in Georgia. For years, they operated on private donations alone, and their finances lived comfortably in a bookkeeper’s spreadsheet. Then they won a two-year, $400,000 grant from a regional foundation. Buried in the award letter was a single line: “Grantee must submit a CPA-reviewed financial statement within 90 days of fiscal year-end.”

The organization had never heard the word “reviewed” applied to their own books before. They scrambled, found a CPA with only six weeks left before the deadline, and discovered their reconciliations hadn’t been done in eight months. The review was completed, but at a rush premium and with several late nights from the small in-house team.

The lesson: the request itself isn’t the hard part but waiting until the deadline is. If your funder has requested a review or audit, the earlier you engage a CPA, the more control you have over cost, timeline, and stress.

Why Funders Ask for a Nonprofit Audit or Review

Funders often require an audit or review when your organization meets certain financial thresholds (such as over $500,000 in annual revenue), receives pass-through grants, has state or federal funding, or when contract terms explicitly demand it. Even if not legally required, many donors expect third-party assurance before awarding grants. Nonprofit funders and grantmakers often require a CPA nonprofit audit or review report to confirm that their money is being managed properly. These reports give an independent opinion on your financial health and accountability:

• Review engagement: Provides limited assurance. The CPA looks for anything unusual using inquiries and analytical procedures.
• Audit engagement: Provides reasonable assurance. The CPA tests transactions, verifies balances, and checks internal controls.

Both are tools funders use to ensure your nonprofit is operating with transparency and financial responsibility.

What To Do First

• Confirm the requirement: Ask your funder whether they specifically need a review or an audit. They are very different levels of service.

• Check the reporting period: Some funders want the entire fiscal year, while others want only the grant period reviewed.

• Select a nonprofit CPA firm: Choose an accountant who regularly works with nonprofits and understands grants, restricted funds, and compliance rules.

Sample Response to Send Your Funder

Not sure how to respond? Here’s a short, professional template you can adapt:

“Thank you for letting us know about this requirement. To make sure we deliver exactly what you need, could you confirm: (1) whether you require a full audit or a financial review, (2) whether the report should cover our full fiscal year or just the grant period, and (3) your submission deadline? We will engage a licensed CPA promptly and keep you updated on our timeline.”

Sending a response like this shows the funder you’re organized and buys you time to select the right CPA rather than guessing at what they actually need.

Every funder’s request is a little different. For the full picture of when your nonprofit needs an audit versus a lighter review, see our complete guide: When Does a Nonprofit Need an Audit? The 7 Trigger Moments.

What Documents You’ll Need

Be prepared to provide:

• General ledger and trial balance
• Bank statements and reconciliations
• Grant agreements and major contracts
• Payroll records and tax filings
• Board meeting minutes and policies

What Does It Cost?

Nonprofit audit and review fees vary based on a few key factors:

• Organization size and revenue: Larger budgets generally mean more transactions to test or review.
• Complexity: Multiple funding sources, restricted grants, or multi-state operations add time.
• Book condition: If your records need cleanup before the engagement can even begin, expect additional cost and time (see our book cleanup and catch-up accounting service if this applies to you).
• Review vs. audit: Reviews are generally faster and less expensive than audits, since they rely on inquiries and analytics rather than detailed testing.

Rather than guessing, the most reliable way to budget is to get a quote based on your specific organization – reach out and we’ll walk you through what to expect for your situation.

The Review or Audit Process

Once engaged, your CPA will:

• Review or test your financial data
• Ask questions about internal controls
• Evaluate how restricted vs. unrestricted funds are tracked
• Draft the financial statements and report

Your role is to respond quickly, provide clarity, and share supporting documents when asked.

What Happens After the Report Is Delivered

Once your CPA finalizes the report, your work isn’t quite done. Here’s what typically comes next:

• Send the report directly to your funder: Most funders want it delivered as-is, not summarized or excerpted. Ask whether they prefer a PDF emailed directly or uploaded through a grant portal.
• Expect a short follow-up window: Funders often review the report within 2-4 weeks and may come back with clarifying questions, especially if this is your organization’s first audit or review.
• File it for future use: Many nonprofits need to reference the same report for multiple funders or for your Form 990. Keep both the final report and supporting workpapers organized for at least seven years.
• Address any findings: If your CPA notes control weaknesses or recommendations (common even in clean reports), treat these as a roadmap, not a failing grade. Funders view responsiveness to findings as a strength, not a red flag.

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Common Myths

“An audit means trouble.” Not true – audits are usually required for compliance, not suspicion.

“It’s only paperwork.” Reviews and audits can reveal ways to strengthen your systems and improve decision-making.

“We need perfect records.” Funders know small nonprofits may not have everything polished; honesty and responsiveness matter more.

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Why This Matters for Your Nonprofit

Completing your first review or audit is a milestone. It shows funders that your nonprofit is serious about accountability and capable of managing larger grants. Strong financial reporting builds trust and positions your nonprofit for growth.

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FAQs