When Your Funder Requests Nonprofit Audit or Review...

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.

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.

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

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.

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.

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.

Ready to Take the Next Step

If your funder has requested a review or audit, don’t wait until deadlines sneak up. Our CPA team specializes in nonprofit audits, reviews, and compliance reporting that help organizations stay funder-ready and confident.

👉Contact us for a quote today

FAQs

When should I expect my funder to require a review or audit?

Many funders make the requirement as part of the grant contract, often for larger awards or multi-year grants. It’s wise to ask early, so you can prepare your accounting records well in advance.

What documents should my nonprofit prepare before engaging a CPA?

Commonly requested documents include your general ledger, bank statements and reconciliations, trial balances, grant agreements, board meeting minutes, payroll records, and policies related to financial controls.

If my records aren’t perfect, can I still do a review or audit?

Yes, perfection isn’t required, but transparency is. CPAs expect some cleanup. Be open about inconsistencies and respond promptly to queries: audits and reviews are as much about process as about past mistakes.

How long does a review or audit engagement usually take?

The timeline depends on the size and complexity of your organization and the state of your books. For many small to medium nonprofits, the process may take several weeks to a few months from kickoff to final report.