If audits really tracked stakeholder need, you'd expect the rules to look roughly the same everywhere. They don't.
A nonprofit raising $1.8 million a year in California isn't required to have an audited financial statement. The same organization, same staff, same programs, sitting in New York, is. Move it to Virginia and the requirement softens to a CPA review. North Carolina drops the requirement entirely. Pennsylvania puts it on a sliding scale that turns on whether contributions cross $750,000.
That isn't a system designed around who needs the assurance. It's a patchwork of historical state legislation, charitable-solicitation enforcement choices, and contribution-based triggers that have very little to do with whether the organization in question would benefit from an audit, or whether anyone reading the audit would actually use it.
For a finance committee chair, an executive director, or a finance director at a small or mid-sized nonprofit, this is practical. Audits are expensive — commonly $15,000 to $50,000 a year for an organization of this size, and trending up. The hours your team spends preparing for one are real hours not spent on the mission. And if no required reader is on the other end of the audit report, the spend is producing compliance theater, not assurance.
Worth knowing what the actual rules are.
What the state nonprofit audit thresholds look like
Independent audit requirements in the U.S. are set primarily at the state level, triggered by either gross revenue or charitable contributions, and applied through state charitable-solicitation registration. A sample of the variation:
| State | Threshold | Trigger |
|---|---|---|
| California | $2,000,000 | Gross annual revenue |
| New York | $1,000,000 | Gross annual revenue and support |
| Illinois | $300,000 | Charitable contributions |
| Pennsylvania | $750,000 | Gross annual contributions |
| Virginia | $1,500,000 | Gross annual revenue (review at $750K) |
| Florida | $1,000,000 | Annual contributions (review at $500K) |
| North Carolina | No state requirement | — |
These thresholds carry exceptions — Pennsylvania's sliding scale, professional-fundraiser triggers in Illinois and Mississippi, donor-imposed requirements that override state rules — but the headline pattern is the point: an organization can be required to spend tens of thousands of dollars on an audit in one state and have no audit requirement at all a state line away.
The thresholds aren't fixed either. New York raised its threshold from $750,000 to $1 million in 2021. Pennsylvania last raised its thresholds in 2018, and there's a bill (HB 965) currently in the legislature proposing to raise them again. The lines drift with inflation, lobbying, and political appetite for nonprofit oversight.
The federal Single Audit threshold just moved
The most consequential audit-threshold change in nearly thirty years just took effect.
The federal Single Audit threshold — the dollar amount of federal expenditures that triggers a Single Audit under Uniform Guidance — increased from $750,000 to $1,000,000. The effective date is fiscal years beginning on or after October 1, 2024, which means fiscal years ending on or after September 30, 2025.
That's a 33% jump, and it was the first increase to the threshold since 1997. The rationale OMB cited was straightforward: $750,000 in 1997 dollars is closer to $1.4 million today, and the audit burden had drifted onto smaller and smaller organizations relative to the original intent.
For thousands of small nonprofits operating just above the old line, this means no Single Audit obligation in their first fiscal year ending after September 30, 2025. State requirements still apply — federal and state thresholds are independent — but the Single Audit lift, which is the most expensive layer for federally-funded organizations, comes off.
What the variation reveals
Three things are worth pulling out.
1. Audit thresholds aren't calibrated to stakeholder need
They're calibrated to political compromise about administrative burden. The finance director of a $2.5 million California Y has the same financial complexity as the finance director of a $2.5 million New York Y — same donors, same staff structure, same programs relative to scale. One is exempt. One is not. The gap has nothing to do with whether either organization actually needs the assurance.
2. "Audit required" doesn't mean "audit useful"
Audits are designed for situations where third-party readers — lenders, institutional funders, regulators — need an independent opinion before making decisions. If your nonprofit has no readers in that category, the audit's primary user is the file cabinet. Some boards genuinely use an audit to validate management. Most accept the auditor's opinion at face value and file it.
3. Lower-assurance services exist for a reason
The accounting profession recognizes a hierarchy: audits provide reasonable assurance, reviews provide limited assurance, compilations provide no assurance, and preparation engagements produce financial statements without any assurance attached. Each level is appropriate for a different stakeholder context. When state law doesn't require an audit and no donor or lender does either, an organization paying for an audit is generally paying for assurance nobody is consuming.
The right question for a small nonprofit
The wrong question is "do we need an audit?" That's the compliance frame, and it's downstream of the actual decision.
The right question is "what financial reporting do our actual readers need?"
The list of actual readers usually includes the IRS (Form 990, no audit required), the board (which needs accurate, timely internal financials more than an annual audit), management (same), state charity regulators (varies), large funders or grantors (sometimes), lenders (if you have institutional debt), and donors (rarely consume the audit report).
If state law requires an audit, that's settled — get the audit. If the federal Single Audit applies because you're over $1 million in federal expenditures in a fiscal year beginning on or after October 1, 2024, that's settled too.
If neither applies, the question opens up. Most small nonprofits in that position need three things: accurate monthly internal financials, a properly prepared Form 990, and a credible set of annual financial statements they can hand to a foundation, a bank, or a board member. None of those things requires an audit, and several of them require professional support most organizations under threshold aren't currently buying.
The middle path most small nonprofits skip
For an organization not legally required to have an audit, the combination worth considering:
A strong monthly close with reliable internal financial reporting. An annual financial statement preparation engagement, where a CPA prepares GAAP financial statements without expressing an opinion. A separately filed Form 990 prepared by a CPA who actually understands the organization.
This produces credible, CPA-prepared financial statements at a fraction of the cost of an audit, with no compliance gap relative to what state and federal rules actually require for organizations under threshold.
It does not produce an auditor's opinion. That's the trade-off. If your readers don't require one, the trade-off favors the prep engagement — you keep the financial-statement quality and skip the assurance you weren't using anyway.
If your readers do require one, get the audit. Don't try to negotiate around it.
A note on what this firm does and doesn't do
Skeehan & Young provides outsourced accounting and finance advisory services to nonprofits, including financial statement preparation engagements. We do not perform audits or reviews — those are attest services, and we keep that line bright on purpose. The independence required to audit a nonprofit's books is not compatible with the day-to-day involvement an outsourced finance partner has in keeping those books in the first place.
What we do is help nonprofit leaders figure out which type of financial reporting their organization actually needs, deliver the close and statement-prep work to a standard that holds up in front of any reader, and coordinate cleanly with the audit firms that perform attest work when it's required.
If the audit-threshold question for your organization is open — or if you've been buying an audit you may not need — that's a conversation worth having.