Does My Nonprofit Need an Audit? Federal, State, and Funder Triggers Explained

Whether your nonprofit needs an audit depends on how much federal money you spend, which states you fundraise in, what your grant agreements say, and what your board has decided. Most organizations that need an audit are pulled in by a specific rule they did not realize applied to them.

This guide walks you through each trigger so you can determine where your organization stands before you call a CPA. If you already know you need a financial statement engagement but are unsure which level, see our companion guide on audit vs. review vs. compilation for nonprofits.

Quick Self-Assessment

Answer these five questions. If you answer yes to any of them, your nonprofit likely needs an audit or review:

1. Does your organization spend $1 million or more in federal awards in any fiscal year?
2. Do any of your grant agreements or contracts specifically require audited or reviewed financial statements?
3. Do you fundraise or solicit contributions in any state that requires an audit at your revenue or contribution level?
4. Has your board adopted a policy requiring an annual audit or review?
5. Do your loan covenants or banking agreements require CPA-prepared financial statements?

If you answered no to all five, an audit may not be legally required right now. But there may still be good reasons to get one, which we cover at the end of this guide.

Trigger 1: Federal Single Audit

This trigger is the highest-stakes and the most clearly defined. Under the federal Uniform Guidance (2 CFR Part 200), any non-federal entity that expends $1 million or more in federal awards during a fiscal year must undergo a Single Audit.

The threshold increased from $750,000 under the 2024 revisions to the Uniform Guidance, effective for fiscal years beginning on or after October 1, 2024 (so December 31, 2025 year-ends are the first to apply the new threshold). Audits performed under Single Audit also follow Government Auditing Standards (the Yellow Book) issued by the GAO.

A Single Audit is more than a standard financial statement audit. It includes compliance testing on each major federal program, evaluation of internal controls over federal awards, a Schedule of Expenditures of Federal Awards (SEFA), and submission of the completed package to the Federal Audit Clearinghouse. The additional Single Audit requirements can raise the incremental cost above a standard audit by 25% to 50% or more.

Key details to get right when counting toward the threshold:

• The threshold is based on total federal expenditures, not individual awards. Subawards and pass-through funds count.
• The effective date is tied to the auditee’s fiscal-year start, not the date of individual awards. An organization with a fiscal year beginning before October 1, 2024 applies the old $750,000 threshold to that entire year regardless of when individual awards were issued.
• Falling below the threshold does not eliminate compliance obligations. You still must follow Uniform Guidance requirements for procurement, cost allocation, subrecipient monitoring, and allowable costs. It only removes the formal audit requirement.

If your federal expenditures are in the $750,000 to $1 million range, track them carefully. One new subaward or pass-through can push you over. For a walkthrough of what to expect during the audit process, see our guide on what actually happens during a nonprofit audit.

Trigger 2: State Charitable Solicitation Requirements

If your nonprofit solicits contributions in any state, you may be required to register and submit audited or reviewed financial statements. The requirements are set by each state independently, and the thresholds vary widely. Approximately 22 states require audited or reviewed statements once a nonprofit reaches a statutory income threshold, according to Labyrinth.

Here are the audit and review thresholds for the states most commonly relevant to Colorado nonprofits fundraising nationally:

This table is not exhaustive. Requirements change, and some states measure contributions while others measure total revenue. A nonprofit fundraising in multiple states should consult the National Council of Nonprofits’ state-by-state guide or work with a CPA who tracks multi-state charitable solicitation requirements.

The key takeaway for Colorado nonprofits: Colorado itself has no state audit requirement, but the moment you fundraise nationally, other states’ rules apply. A Colorado-based human services organization raising $1.5 million from donors in New York, California, and Florida may be required to produce audited statements for two of those states even though Colorado does not require them.

Trigger 3: Grant Agreements and Funder Requirements

Grant-driven requirements catch more organizations than any other trigger. Many private foundations, corporate funders, and government agencies include financial reporting requirements in their grant agreements, award letters, or compliance guidelines. These requirements exist independently of state and federal rules.

What to look for in your grant documentation:

• Language requiring “audited financial statements” means a full audit. A compilation or review will not satisfy this.
• Language requiring “CPA-prepared financial statements” may be satisfied by a review or compilation depending on context. If the language is ambiguous, ask the funder in writing before assuming a lower level is acceptable.
• Language requiring “a copy of your most recent audit” implies the funder expects you to already have one. If you do not, this is a conversation to have before submitting your application.
• Deadlines tied to financial statements. Some funders require audited statements within 90 days of fiscal year-end. Others require them as part of an annual grant report. Missing these deadlines can jeopardize current and future funding.

As a practical rule: read the financial reporting requirements in every grant agreement during the proposal stage, not after the award is made. If a new grant will push your organization into needing an audit for the first time, factor the audit cost ($10,000 to $25,000) into your grant budget. Funders may permit audit costs as an allowable indirect expense.

Trigger 4: Board Policy and Organizational Bylaws

Some nonprofit boards adopt internal policies requiring an annual audit, independent of any external mandate. This is especially common among community foundations, health and human services organizations, membership associations, and nonprofits with annual revenue above $1 million.

If your board has adopted such a policy, it is a binding governance requirement. Skipping the audit because no funder or state technically requires it would put the organization out of compliance with its own governing documents. Review your bylaws and any board-adopted financial policies to confirm whether an audit requirement exists.

Trigger 5: Lending and Banking Covenants

Nonprofits that carry debt, such as building mortgages, lines of credit, or equipment financing, may have loan covenants that require CPA-prepared financial statements. The lender’s required level (compilation, review, or audit) depends on the loan amount and the nature of the collateral. Failure to deliver the required statements on time can trigger a technical default, even if all payments are current.

When You Should Consider an Audit Even If Not Required

Not every nonprofit that should have an audit is required to have one. There are situations where a voluntary audit serves the organization well:

• You plan to apply for larger grants. Many major foundations and all federal grants above $1 million require audited statements. Having an audit already in place when you apply signals financial maturity and eliminates a barrier in the application process.
• You are growing rapidly. Organizations that double in revenue over two or three years often outpace their accounting systems and internal controls. An audit identifies weaknesses before they become material problems.
• You have experienced leadership transitions. New executive directors and finance staff inherit systems they did not build. An audit gives the incoming team, and the board, confidence that the financial foundation is solid.
• Your organization handles public trust. Community foundations, donor-advised fund sponsors, and organizations with fiduciary responsibilities benefit from the credibility that an independent audit provides, even if no specific rule requires one.
• You have never been audited. The first audit is the most labor-intensive. Organizations that wait until an audit is suddenly required often face a rushed engagement with a CPA who has no history with their systems. Starting voluntarily gives you time to prepare and build a relationship with an experienced nonprofit auditor.

How WhippleWood CPAs Can Help

If you are not sure whether your nonprofit is required to have an audit, we can help you assess your federal, state, and funder-specific obligations and determine the right level of financial statement service. Our assurance team works with nonprofits of all sizes across Colorado, from organizations preparing for their first review to those managing annual Single Audits across multiple federal programs.

Contact WhippleWood CPAs to discuss your nonprofit’s audit requirements.

Related Resources:

• Audit vs. Review vs. Compilation: Which One Does My Nonprofit Need?
• What Actually Happens During a Nonprofit Audit
• Financial Statement Services: Preparation, Compilation, Review, and Audit Explained