Nonprofit Audits Explained: What to Expect and How to Prepare

Nonprofit organizations exist to do good, but when it comes to finances, doing good also means doing things by the book.

One of the most misunderstood (and sometimes feared) aspects of nonprofit financials is the audit. But here’s the truth: a nonprofit audit isn’t a punishment. It’s a powerful tool to build transparency, accountability, and trust with your stakeholders.

Whether your nonprofit is preparing for its first audit or wants to ensure a smooth process next year, understanding what to expect and how to prepare can turn a stressful experience into a strategic advantage.

At Jimerson Advisory Group, we help mission-driven organizations in Houston and nationwide become audit-ready with clarity and confidence. While we do not conduct audits ourselves, we play a vital role in preparing your nonprofit to engage an independent CPA for that process. We take pride in educating our clients so they feel empowered, not overwhelmed, throughout their financial journey.

What Is a Nonprofit Audit, Really?

A nonprofit audit is an independent examination of your organization’s financial records and procedures. It’s not just about compliance; it’s about ensuring your accounting practices are accurate, well-documented, and aligned with GAAP (Generally Accepted Accounting Principles).

There are different types of audits, but the most common for nonprofits is the financial statement audit conducted by a separate, independent CPA firm. It verifies whether your financial statements fairly represent your organization’s financial position.

Think of it as a report card for your nonprofit’s financial health. A clean nonprofit audit report tells donors and stakeholders that your organization is trustworthy, responsible, and well-managed.

When Is an Audit Required?

  • When your nonprofit receives federal funding of $750,000 or more (triggering a Single Audit under the Uniform Guidance)
  • If required by your state, board, or major donors
  • When applying for grants or external funding opportunities

Even if you’re not required to undergo an audit, it can still be a smart investment. Many nonprofits opt for audits voluntarily as part of building donor confidence or preparing for future growth.

Why Nonprofit Audits Matter

Let’s face it: trust is the currency of nonprofits. Donors, board members, and grantmakers need assurance that their contributions are being handled responsibly. An audit builds credibility and offers peace of mind.

But that’s not all. A well-prepared audit can:

  • Reveal inefficiencies or gaps in financial controls
  • Improve your internal processes
  • Strengthen your case when applying for grants
  • Position your nonprofit for long-term sustainability
  • Support leadership with better financial insights

Audits can also highlight where your team is doing well, validating your hard work and encouraging operational excellence.

👉 For more insights on how financial strategy supports nonprofit growth, check out our post on 5 Ways a CPA Adds Value.

How to Prepare for a Nonprofit Audit

Preparation is half the battle. While the audit will be conducted by an independent CPA, here’s how Jimerson Advisory Group helps nonprofits get audit-ready:

1. Organize Your Financial Records

From bank reconciliations and payroll reports to donation receipts and expense logs, we help you compile and organize all necessary documentation. Clear, well-maintained records reduce back-and-forth during the audit process.

2. Review Internal Controls

Auditors will assess your systems to ensure proper separation of duties and reduced risk of fraud. We guide you in documenting your policies, defining roles, and establishing financial safeguards.

3. Reconcile Accounts Early

We help ensure that all your accounts—bank, credit card, grants, and liabilities—are up to date and reconciled before audit season. Using tools like QuickBooks, we streamline this process.

4. Communicate With Your Board

We assist in preparing your board of directors by explaining the audit process and providing any necessary documentation. Their awareness and cooperation are essential.

5. Partner with the Right Audit Firm

Once your organization is ready, we can help you identify and engage an independent CPA firm to perform the audit. Our network and experience ensure you’re matched with professionals who understand nonprofit accounting.

What to Expect During the Audit Process

While the audit itself is conducted by a third-party CPA, here’s what the general process looks like:

Initial Planning & Risk Assessment

Your independent auditor will meet with your team to understand operations and develop a tailored audit plan. Prior to this, we help prepare and organize the information they’ll need.

Fieldwork

This is when the audit team reviews your books, tests transactions, and interviews staff. Our role is to ensure your documentation is ready and to support your team throughout.

Audit Report & Feedback

At the conclusion, the auditor provides a formal opinion on your financial statements. If there are any recommendations or a management letter, we help interpret the findings and implement improvements.

At Jimerson Advisory Group, our goal is not just preparation—it’s transformation. We help you use the audit as a strategic tool for operational excellence.

Common Misconceptions About Nonprofit Audits

“An audit means we’re in trouble.”

Not true. Many audits are routine or legally required. Voluntarily pursuing an audit can also demonstrate your commitment to transparency.

“Audits are only for big nonprofits.”

Even smaller nonprofits can benefit from regular audits or reviews, especially when building donor trust or planning for growth.

“We’ll be penalized for every small error.”

Auditors are focused on material issues, not minor mistakes. With proper preparation, your nonprofit will be in a great position to receive constructive feedback.

“Audits are expensive and not worth it.”

When seen as an investment in accountability, risk management, and donor confidence, the long-term value often outweighs the cost.

Why Work With Jimerson Advisory Group?

At Jimerson Advisory Group, we believe audits should be empowering—not intimidating. We’re a Black-owned, woman-owned CPA firm based in Houston serving nonprofits nationwide.

While we don’t conduct audits ourselves, we:

  • Prepare nonprofits to be audit-ready
  • Provide year-round accounting and tax support
  • Offer practical, jargon-free guidance
  • Understand grant compliance, in-kind donations, and restricted funds
  • Support IRS representation, forecasting, and cash flow management

With decades of experience, we help your nonprofit thrive before, during, and after the audit process. Read what our clients are saying.

Whether your organization is based in Texas or across the U.S., we’re ready to help you move forward with confidence. 

Let’s Talk

Have questions or ready to schedule a consultation? Contact us here. Let’s talk about how we can support your nonprofit’s financial clarity and growth through smart audit preparation and strategic advisory.