501c3 Audit Requirements: When Do You Need An Audit?

As a nonprofit organization, you’re likely going to need a 501c3 audit at some point during the span of your operations. Although the IRS doesn’t set forth specific 501c3 audit requirements, there are times when your organization will need an audit.

Let’s look at 501c3 audit requirements and the specific instances when your nonprofit organization must be audited.

501c3 Audit Requirements

As mentioned, the IRS does not require nonprofit organizations to submit regular financial audits. However, an audit is necessary at certain times, such as if your organization receives more than $750,000 in federal funds or you’re applying for a loan.

To complete an audit, your auditor will need:

Your financial statements, including a balance sheet, ledger, and tax documents
An accurate Schedule of Expenditures of Federal Awards (SEFA)
Your internal controls documentation

Having these documents ready will ensure your audit goes smoothly. Depending on the type of audit you need, you might be required to submit other documents. If you need to provide other documents, your auditor will be able to explain what is needed.

Let’s take a look at some instances where your organization might need an audit.

When Does a Nonprofit Need an Audit?

It’s not always clear when a charity or NFP organization needs an audit. Let’s examine five instances in which your organization might need one.

1. Single Audit Requirements

If your nonprofit organization receives $750,000 or more in federal funds, you’ll be required to submit a single audit in accordance with the Uniform Guidance and the federal law requirements of the Single Audit Act. Single audits help ensure an organization properly allocates funds according to their federal grant agreements.

2. Bylaws of the Nonprofit Organization

Your nonprofit organization’s bylaws might require a yearly review or nonprofit annual audit. Annual audits for internal purposes help ensure there is no fraud or mismanagement of the organization’s funds.

3. State Laws Regarding Spending

Certain state laws might also require your organization to undergo an independent audit. The audit will help support how your organization receives and spends funds from grantors, contributors, and contracts.

4. Grant Funding Requirements

As a nonprofit, you might need to complete a nonprofit audit due to the terms of your grant’s funding requirements. If your grant requires an audit, your organization must comply with these requirements to continue receiving the necessary funding.

5. Applying for Loans

If your nonprofit organization needs additional funding and you choose to apply for a loan, more often than not, a bank will require an audit of your loan application, and throughout the life of the loan. An audit helps your loan officer understand your financial situation and your reasoning for funding.

Partner with Assurance Dimensions for Your Auditing Requirements

As a nonprofit organization, it’s a good idea to prepare your financial statements and documents for any 501c3 audit requirements that may arise. And when you need an independent audit, consider partnering with Assurance Dimensions.

Principal, Batul Abdulali, ACA, of Assurance Dimensions, says best, “We listen. Our clients and our team members work together to make the audit process as smooth and efficient as possible. This allows us to become a resource to our clients all throughout the year instead of just during the audit engagement.”