Making Sense of Different Nonprofit Audits
In the nonprofit world, the word “audit” is used different ways by funders, board members, regulators, and others. A financial statement audit, a Yellow Book audit, and a Single Audit may sound similar, however, they serve very different purposes and come with different reporting requirements. Here is a straightforward way to think about them.
Financial Statement Audit: The Basic
This is the most common type of audit. A financial statement audit provides independent assurance that a nonprofit’s financial statements are presented fairly in accordance with generally accepted accounting principles (GAAP) or another special purpose framework. A financial statement audit is performed in accordance with generally accepted auditing standards.
Nonprofits typically undergo a financial statement audit because the board, through its bylaws, a donor, lender, or state regulation requires it.
A financial statement audit results in one main deliverable – an independent auditor’s report expressing an opinion on the financial statements. A financial statement audit does not include reporting on internal controls, compliance or federal funding requirements.
To learn more about financial statement audits for nonprofits, see the previous article, “Are Nonprofit Organizations Required to Have a Financial Statement Audit?”
Yellow Book Audit: A Step Up
Think of a Yellow Book audit as a financial statement audit with added transparency. A Yellow Book audit is performed under Government Auditing Standards. Along with the financial statement opinion, auditors also report on internal controls and compliance matters.
Nonprofits may be required to have a Yellow Book audit when receiving government funding or if certain regulators require it.
The additional Yellow Book report issued by auditors does not provide an opinion on internal controls or compliance but does report any significant deficiencies or material weaknesses in internal control over financial reporting that were identified, as well as any instances of noncompliance that are material to the financial statements.
Single Audit: A Deep Dive into Federal Funds
A Single Audit goes beyond both previous types. It includes everything in a financial statement and Yellow Book audit, plus detailed testing of federal program compliance. The purpose of this audit is to ensure federal funds are being properly spent in accordance with specific federal program requirements and is conducted in accordance with the audit requirements of the Uniform Guidance. Auditors are also required to use the annual compliance supplement issued by the Office of Management and Budget to determine the nature and extent of the compliance testing procedures.
A nonprofit is required to have a Single Audit performed if it expends $1,000,000 or more in federal awards during its fiscal year. The threshold is based on expenditures incurred, not funds received, during the fiscal year. It is important to note that any federal funds passed through state or local governments count towards the threshold.
A Single Audit includes several additional reports, including the Schedule of Expenditures of Federal Awards (SEFA), a Schedule of Findings and Questioned Costs, and auditor reports on internal control over compliance and a report on compliance for each major federal award program.
The Single Audit reporting package is required to be submitted to the Federal Audit Clearinghouse (FAC) within the earlier 30 calendar days after the issuance of the auditor’s report, or nine months after the end of the fiscal year being audited. These reports are available to the public for review.
Final Thoughts
While these audits may appear similar on the surface, their scope and the reporting requirements vary significantly from one to the next.
Understanding these differences helps organizations prepare, plan staffing and documentation needs, and reduce surprises or unexpected audit findings.
If you have questions about the information outlined above, please contact us; our seasoned and experienced nonprofit professionals are here to help. You can also learn more about our nonprofit services by visiting our Nonprofit industry page.
About the Author
Erin is an Assurance Manager with extensive experience serving nonprofit organizations and affordable housing entities. She provides audit, assurance, and advisory services to a broad range of mission-driven entities, including ch… Read more
