Most nonprofits are not required by federal or Ohio law to obtain an independent financial statement audit, but many still need one. The nonprofit audit requirements that most often apply come from three sources: a federal Single Audit triggered by spending $1 million or more in federal awards in a fiscal year, conditions written into grant agreements or loan covenants, and provisions in your own bylaws. Ohio’s charitable registration system does not impose a statewide audit threshold, so for many Ohio organizations the decision to audit is driven by funders and lenders rather than by the state. This guide explains when an audit is mandatory, how an audit differs from a review or compilation, the Ohio-specific rules, and how to prepare.
Where Nonprofit Audit Requirements Come From
Many boards assume every 501(c)(3) must be audited each year. In practice, the requirement almost always comes from a specific obligation rather than a blanket rule. Identifying which obligation applies to your organization is the first step in budgeting for and scheduling the right engagement.
Federal Single Audit at $1 Million
The most clearly defined trigger is the federal Single Audit. Under the Uniform Guidance at 2 CFR Part 200, a non-federal entity that expends $1 million or more in federal awards during its fiscal year must obtain a single audit or a program-specific audit for that year. This threshold rose from $750,000 to $1 million and applies to fiscal years beginning on or after October 1, 2024, so the change first affects fiscal years ending on or after September 30, 2025.
The key measure is federal expenditures, not federal revenue or awards received. A nonprofit can hold a large multi-year grant yet stay below the threshold in any single year if it draws down and spends less than $1 million during that year. Federal funds passed through a state agency or another nonprofit still count toward the total, so pass-through dollars must be tracked as carefully as direct awards. You can read the audit requirement directly in the Electronic Code of Federal Regulations at 2 CFR 200.501.
Because the Single Audit has its own rules, scope, and reporting deadlines, we cover it in depth in our companion article on the new $1 million Single Audit threshold. If your organization is anywhere near $1 million in federal spending, treat that piece as required reading alongside this one.
Grantor, Funder, and Contract Requirements
Even below the federal threshold, individual funders frequently require audited financial statements. Many private foundations, community funders, and state or local government grantors condition their support on receipt of an annual audit or, for smaller awards, a review. These requirements live in the grant agreement, so read every award letter and contract before you assume an audit is optional.
Some funders set their own dollar thresholds, requiring an audit only once your total budget or their specific award exceeds a stated amount. Others require the audit regardless of size. When multiple funders each impose a requirement, the strictest one generally governs how much assurance you need.
Lender and Bylaw Requirements
Banks and other lenders often include a financial reporting covenant in loan and line-of-credit agreements. A covenant may require audited statements delivered within a set number of days after year end, and failing to deliver can constitute a technical default even if payments are current. If your organization carries debt, confirm what level of assurance the lender expects.
Your own governing documents can also create an obligation. Many nonprofit bylaws direct the board or audit committee to arrange an annual independent audit, and once that language is adopted the audit becomes a matter of governance compliance. Boards should periodically confirm whether their bylaws still match the organization’s actual practice and needs.
Audit vs. Review vs. Compilation
When a funder or lender asks for “financial statements,” clarify which level of service they mean. A CPA can provide three levels of assurance, and they differ in cost, effort, and the confidence a reader can place in the numbers. Choosing the right one prevents both overspending and falling short of a requirement.
An independent financial statement audit is the highest level of assurance. The CPA gathers evidence, tests transactions and balances, evaluates internal controls, confirms information with third parties such as banks and donors, and then issues an opinion on whether the statements are presented fairly in accordance with generally accepted accounting principles. An audit is the most rigorous and the most expensive of the three, and it is the level most often demanded by large funders, lenders, and the federal government.
A review provides limited assurance. The CPA performs analytical procedures and inquiries but does not test transactions or confirm balances the way an audit does, and the report states that the accountant is not aware of any material modifications that should be made. A review costs less than an audit and satisfies many mid-size funders, but it does not carry an opinion.
A compilation provides no assurance. The CPA assembles financial statements from information the organization provides, formatting them into proper statements without verifying the underlying data or expressing any conclusion. Compilations are the least costly option and are typically used for internal purposes or for smaller stakeholders who simply need presentable statements. The National Council of Nonprofits offers additional plain-language background on these distinctions.
The Ohio Angle: Attorney General Charitable Registration
Ohio takes a lighter statutory approach to audits than many states. Charitable organizations that solicit contributions in Ohio must register with the Ohio Attorney General and file an annual financial report, generally by submitting a copy of the IRS Form 990, 990-EZ, or 990-N along with the required registration filing. You can review these obligations through the Ohio Attorney General’s charitable registration resources.
Importantly, Ohio’s charitable solicitation statute does not set a statewide revenue threshold that forces a nonprofit to submit audited or reviewed financial statements simply for registering. Ohio Revised Code 1716.04 requires an annual financial report and directs the Attorney General to accept a copy of the organization’s IRS return in satisfaction of that report, and the implementing rule in Ohio Administrative Code 109:1-2-02 scales only the filing fee by contribution level without ever requiring audited financials. As a result, many Ohio nonprofits satisfy state charitable filing rules without ever commissioning an independent audit. This is different from states such as California or New York, where crossing a stated revenue level requires filing audited financials with the state.
That lighter state posture does not mean Ohio nonprofits can ignore audits. Federal Single Audit rules apply in Ohio exactly as they do elsewhere, and Ohio funders, foundations, and lenders routinely require audits or reviews as a condition of their support. Organizations that solicit across state lines should also check the registration and audit thresholds of every state where they fundraise, because national fundraisers often trigger another state’s audit requirement even when Ohio’s own rules would not.
How to Prepare for a Nonprofit Audit
A well-prepared organization shortens the audit, reduces fees, and avoids the stress of scrambling for documents during fieldwork. Preparation is largely about reconciling accounts and organizing evidence before the auditors arrive. The following checklist covers the essentials.
- Reconcile every balance sheet account, including all bank and investment accounts, to supporting statements as of year end.
- Prepare a trial balance and draft financial statements that tie to the general ledger.
- Assemble grant agreements, award letters, and contracts, and prepare a schedule of federal expenditures if you are near or above the Single Audit threshold.
- Document contributions with and without donor restrictions, and reconcile net asset balances to prior-year audited figures.
- Gather board minutes, current bylaws, and any policies the auditor may request, such as conflict-of-interest and gift-acceptance policies.
- Pull payroll records, retirement plan filings, and copies of the most recent IRS Form 990.
- Prepare fixed asset and depreciation schedules and reconcile them to the general ledger.
- Compile a schedule of functional expenses, since nonprofits must report expenses by both function and nature.
That functional expense schedule deserves particular attention, because how you allocate costs across program, management, and fundraising affects both your financial statements and your Form 990. Our guidance on the not-for-profit accounting standard walks through presentation requirements that auditors will expect you to have applied.
Finally, engage your auditor early. Reputable firms book audit season months in advance, and starting the conversation well before year end lets you fix bookkeeping gaps while they are still easy to correct.
Frequently Asked Questions
Is every nonprofit required to have an audit?
No. There is no universal federal or Ohio requirement that every 501(c)(3) obtain an annual audit. An audit becomes mandatory only when a specific trigger applies, such as spending $1 million or more in federal awards, a funder or lender requirement, or a provision in your own bylaws.
What is the current Single Audit threshold?
A nonprofit that expends $1 million or more in federal awards during its fiscal year must obtain a Single Audit or a program-specific audit. This threshold applies to fiscal years beginning on or after October 1, 2024, and is measured by federal dollars actually spent, including pass-through funds, not by federal revenue received.
Does Ohio require nonprofits to file audited financial statements?
Ohio’s charitable registration system generally accepts the IRS Form 990 as the annual financial report and does not impose a statewide revenue threshold that forces submission of audited financials for registration. However, federal rules, funders, and lenders may still require an audit, and nonprofits that fundraise in other states may trigger those states’ audit thresholds.
What is the difference between an audit and a review?
An audit provides the highest level of assurance, with the CPA testing transactions, confirming balances, and issuing an opinion on the financial statements. A review provides limited assurance based mainly on inquiry and analytical procedures, costs less, and issues no opinion. Funders often specify which level they require.
How much does a nonprofit audit cost?
Cost varies widely with the size and complexity of the organization, the quality of its accounting records, and whether a Single Audit is involved. A review or compilation generally costs considerably less than a full audit, which is one reason it is important to confirm exactly what a funder or lender requires before engaging a firm.
How long does a nonprofit audit take?
For a well-prepared organization, fieldwork often runs one to three weeks, with additional time for drafting and finalizing the report. Preparation quality is the biggest variable; clean reconciliations and organized documentation can shorten the process substantially, while missing records can extend it well past year end.
If you are weighing whether your organization needs an audit or how to prepare for one, our nonprofit accounting team and our audit and assurance professionals work with Ohio nonprofits on Single Audits, financial statement audits, reviews, and compilations.
