For Not-For-Profit organizations, transparency and accountability are the foundation of trust. Whether your funding comes from grants, donations, or community partnerships, stakeholders expect assurance that resources are being managed responsibly. A well-executed audit not only fulfills regulatory requirements—it also demonstrates your organization’s commitment to integrity and good governance.
If your Not-For-Profit is preparing for its first audit or looking to strengthen existing compliance practices, understanding what’s required and how to prepare can help you navigate the process with confidence.
Why Audits Matter for Not-For-Profits
Audits provide an independent, objective review of your organization’s financial health. Beyond satisfying external requirements, they offer valuable insights that can help you improve internal processes, strengthen financial management, and enhance your reputation with funders.
A thorough audit can help your organization:
- Reinforce donor confidence through verified financial reporting
- Identify opportunities to improve internal controls and efficiency
- Ensure compliance with funding agreements and state or federal laws
- Provide leadership and the board with reliable data for decision-making
Many funding agencies and state regulators require audits once certain thresholds are met. Even when not required, voluntary audits can elevate your organization’s credibility and readiness for future growth.
Understanding Audit Requirements
Audit requirements for Not-For-Profits vary based on size, revenue, and funding sources. Below are some key areas to be aware of.
Federal and State Thresholds
Under the Uniform Guidance, organizations that expend $1 million or more in federal funds during a fiscal year are required to undergo a Single Audit. This audit examines both the organization’s financial statements and its compliance with applicable federal program requirements. (Note: The threshold increased from $750,000 to $1 million for fiscal years ending on or after September 30, 2025.)
Michigan State Requirements
At the state level, requirements vary by jurisdiction. In Michigan, charitable organizations that solicit contributions from the public must register with the Attorney General’s Charitable Trust Section. Updated thresholds now require:
- Audited financial statements for organizations with annual gross receipts exceeding $550,000, or total assets exceeding that amount.
- Reviewed or audited financial statements for organizations with gross receipts between $300,000 and $550,000.
- Organizations below these thresholds may submit compiled financial statements or other required filings.
When calculating total annual gross receipts, the IRS notes that “contributions in the form of grants or similar payments from local, state, or federal government sources, as well as foreign governments,” are excluded (Form 990 instructions). This distinction can make a significant difference in determining whether your organization meets the audit threshold.
Michigan also allows a one-time audit waiver, offering limited flexibility for qualifying organizations that would otherwise be required to submit audited financials.
Understanding both the updated federal Single Audit threshold and Michigan’s revised state-level audit requirements enables Not-For-Profits to plan proactively, allocate resources appropriately, and ensure compliance with all applicable financial reporting regulations.
Grant and Donor Requirements
Many grantors, particularly government agencies and private foundations, require audited financial statements as part of the grant application or renewal process. Meeting these expectations can position your organization for continued funding and demonstrate sound fiscal stewardship.
Board or Bylaw Provisions
Some Not-For-Profits choose to include audit requirements in their bylaws or internal policies. This proactive approach encourages consistent oversight and builds trust with stakeholders and community partners.
Preparing for a Successful Audit
A successful audit starts long before auditors arrive. By maintaining strong financial practices throughout the year, your organization can minimize stress and ensure a smooth process.
Keep Records Organized
Accurate, up-to-date financial records are essential. Maintain clear documentation for all transactions—receipts, invoices, payroll records, grant agreements, and bank reconciliations. Organized records allow auditors to verify information quickly and efficiently.
Evaluate Internal Controls
Strong internal controls protect your organization from errors and misuse of funds. Review your approval processes, segregation of duties, and documentation practices regularly to ensure they remain effective.
Communicate Early and Often
Reach out to your auditor early in the year to discuss timelines, expectations, and any changes in operations or funding. Clear communication prevents surprises and helps both parties stay aligned throughout the process.
Track Grant and Program Compliance
Maintain detailed records of how grant funds are used and ensure that all reporting requirements are met. Compliance documentation not only satisfies funders but also demonstrates your organization’s commitment to transparency and accountability.
Building a Culture of Accountability
Compliance isn’t just about passing an audit—it’s about building an organizational culture that values accuracy, transparency, and responsibility. Regular policy reviews, staff training, and active board engagement can help your Not-For-Profit organization stay compliant and resilient.
When accountability becomes part of your culture, your organization is better equipped to adapt to evolving regulations and continue delivering on its mission.
How De Boer, Baumann & Company Can Help
At De Boer, Baumann & Company, we understand the challenges and opportunities that come with running a Not-For-Profit organization. Our dedicated team provides audit and assurance services designed specifically for the Not-For-Profit sector, combining technical expertise with a deep appreciation for mission-driven work.
From preparing for your next audit to strengthening internal controls and meeting compliance standards, we partner with you to build confidence in your financial management practices—so you can focus on what truly matters: serving your community and advancing your mission.