Do We Need an Audit, a Review, or Neither?

By Gina Mastromarino, Founder of Brightline CFO · About a 2 minute read

Boards ask for an audit far more often than one is actually required.

Nonprofit boards frequently request "an audit" when what they actually want is assurance that the finances are in order. Those are different products at very different prices.

The three levels

• Compilation: financial statements prepared from your records, with no assurance offered
• Review: analytical procedures and inquiry, providing limited assurance, and considerably cheaper than an audit
• Audit: testing, confirmation, and evaluation of internal controls, providing reasonable assurance

What usually triggers a requirement

Requirements typically come from outside the organization rather than from the board: state charitable registration thresholds, federal award requirements above a spending threshold, grantmaker conditions, lender covenants, or your own bylaws. Check those sources before commissioning anything, because the answer is often narrower than assumed.

Getting ready is most of the cost

Organizations that reconcile monthly, track restricted funds properly, and document board approvals move through the process quickly. Organizations that do not are paying professional rates for cleanup they could have done themselves.

Thresholds and rules differ by state and funder and change over time. Verify against your current obligations.