Preparing for your Annual Audit
Nonprofits juggle a maze of funding sources, each with its own restrictions, timelines, and reporting needs. Managing these demands manually isn’t just time-consuming—it’s risky and unsustainable. MissionGranted changes the game, offering smart tools that transform budgeting and resource management into a strategic advantage.
By Dayna Sear, Founder & CEO, Smart Grant Solutions
Preparing for Your Annual Audit: A Grant Compliance Guide
As the founder of Smart Grant Solutions and a long-time advisor to nonprofit organizations, I’ve worked with many teams navigating the maze of annual audits. Whether it’s your first or your fifteenth, preparing for an audit can feel overwhelming, especially when juggling multiple grants with different compliance requirements.
In this post, I’ll answer the four most common questions I hear and offer practical guidance that will help your organization feel confident and prepared.
1. How Do You Identify Audit Triggers and Requirements?
Under 2 CFR Part 200 Subpart F, a federal single audit is required when a non-federal entity with a fiscal year beginning after October 1, 2025, expends $1,000,000 or more in federal awards in a fiscal year. Those entities with fiscal years that began before October 1, 2025, are still bound by the $750,000 expense threshold.
But that’s just the beginning. Audit triggers can also stem from:
State and local agency requirements Many states have their own thresholds and requirements for audits, even if you don’t meet the federal single audit criteria.
Grantor-imposed audit terms Foundations or other funding entities may include audit requirements in award letters or grant agreements, including special-purpose audits tied to specific programs or outcomes.
Organizational bylaws or board policies
Some nonprofits voluntarily pursue audits or reviews to maintain transparency or meet internal governance standards.
Key Tip: Maintain a grant matrix or checklist that flags audit thresholds and reporting requirements for each grantor, and update it at least quarterly.
2. What Type of Audit Do You Need?
Audits and financial reviews aren’t one-size-fits-all. Understanding the scope of each helps ensure you’re getting what your funders require without overpaying or missing compliance marks.
How to Choose: Review your total federal expenditures, funding sources, and grant agreements to determine requirements. Consult with your auditor or financial advisor before your fiscal year-end to determine the scope of services you need, which is usually the most stringent of the requirements.
3. What Grant Documentation Should We Have for the Audit?
Good documentation is your first line of defense, and your strongest asset, during an audit.
Top Documentation Practices:
Segregate grant budgets in your accounting system
Pro Tip: Use a documentation checklist by grant to track what's been uploaded, what's missing, and when updates are due.
4. How Can We Mitigate Our Risk?
Audits often reveal gaps that were preventable with better internal controls. Strong pre-audit prep can mitigate findings and show auditors you're proactive.
Internal Control Best Practices:
Conclusion: Make Your Audit an Opportunity, Not an Obstacle
Annual audits don’t have to be a source of stress or surprise. With proactive planning, clear documentation, and a solid understanding of your audit requirements, your organization can approach audit season with confidence and clarity.
Whether you’re managing a single federal grant or navigating a complex portfolio of awards, the key to audit readiness lies in building strong internal controls, maintaining organized records, and fostering a culture of compliance throughout the year.
Think of the audit not just as a compliance exercise, but as a valuable opportunity to strengthen transparency, improve financial systems, and demonstrate stewardship to funders, boards, and your community. Because when your audit tells a story of integrity, accountability, and preparedness it’s a story worth sharing.
How MissionGranted Helps You Stay Ready
At Smart Grant Solutions, we created MissionGranted because we saw how nonprofits and local governments were struggling to stay compliant across multiple grants and audits, especially with limited resources.
Our software:
If you're preparing for an audit or just want to build a more resilient grant management process, MissionGranted is designed to support you efficiently, affordably, and compliantly.
Preparing for Your Annual Audit: A Grant Compliance Guide
As the founder of Smart Grant Solutions and a long-time advisor to nonprofit organizations, I’ve worked with many teams navigating the maze of annual audits. Whether it’s your first or your fifteenth, preparing for an audit can feel overwhelming, especially when juggling multiple grants with different compliance requirements.
In this post, I’ll answer the four most common questions I hear and offer practical guidance that will help your organization feel confident and prepared.
1. How Do You Identify Audit Triggers and Requirements?
Under 2 CFR Part 200 Subpart F, a federal single audit is required when a non-federal entity with a fiscal year beginning after October 1, 2025, expends $1,000,000 or more in federal awards in a fiscal year. Those entities with fiscal years that began before October 1, 2025, are still bound by the $750,000 expense threshold.
But that’s just the beginning. Audit triggers can also stem from:
State and local agency requirements Many states have their own thresholds and requirements for audits, even if you don’t meet the federal single audit criteria.
Grantor-imposed audit terms Foundations or other funding entities may include audit requirements in award letters or grant agreements, including special-purpose audits tied to specific programs or outcomes.
Organizational bylaws or board policies
Some nonprofits voluntarily pursue audits or reviews to maintain transparency or meet internal governance standards.
Key Tip: Maintain a grant matrix or checklist that flags audit thresholds and reporting requirements for each grantor, and update it at least quarterly.
2. What Type of Audit Do You Need?
Audits and financial reviews aren’t one-size-fits-all. Understanding the scope of each helps ensure you’re getting what your funders require without overpaying or missing compliance marks.
Audit Type | Trigger | Scope |
Single Audit | Federal spending ≥ $750K/$1M | Full financial + compliance audit |
Yellow Book Audit | Gov’t funding or agency requirement | Financial + internal controls review |
Financial Statement Audit | Funders, boards, or state law | Full GAAS audit of financials |
Financial Review | Smaller orgs or funder thresholds | Limited assurance |
Compilation | Basic financial prep | No assurance |
Special-Purpose Audit | Grantor request | Specific award or topic |
Agreed-Upon Procedures | Board or funder-defined | Custom scope |
State-Specific Audit | Varies by law | State-determined |
IRS Review | IRS compliance initiative | Not a financial audit |
Internal Audit | Governance or capacity building | Custom internal focus |
How to Choose: Review your total federal expenditures, funding sources, and grant agreements to determine requirements. Consult with your auditor or financial advisor before your fiscal year-end to determine the scope of services you need, which is usually the most stringent of the requirements.
3. What Grant Documentation Should We Have for the Audit?
Good documentation is your first line of defense, and your strongest asset, during an audit.
Top Documentation Practices:
Segregate grant budgets in your accounting system
- Use classes, projects, or funds depending on your accounting system to ensure costs are traceable by grant source.
- Keep a list of all active grants within the fiscal year that references the funding organization and contract number. If you have government grants, also reference the originating agency, awarding department, Assistance Listing Number, and pass through entity if appropriate. Also have the grant award letter, agreement/contract, budget, and amendments in a centralized, accessible folder.
- Have all supporting documents including receipts, vendor agreements, procurement bids, and approval workflows available for review.
- Review your internal policies annually to ensure they align with funder requirements and audit actual processes to maintain alignment with the policies and procedures. Time-keeping certification and procurement rules are areas where practice often falls short of requirements. Take the time to communicate policies and procedures to all employees involved in the financial process.
- Record required matching expenses and in-kind contributions with the same rigor as grant expenditures.
Pro Tip: Use a documentation checklist by grant to track what's been uploaded, what's missing, and when updates are due.
4. How Can We Mitigate Our Risk?
Audits often reveal gaps that were preventable with better internal controls. Strong pre-audit prep can mitigate findings and show auditors you're proactive.
Internal Control Best Practices:
- Segregation of duties: No single person should authorize, process, and record a transaction.
- Regular reconciliations: Monthly reconciliations between your grant budget and actuals help catch discrepancies early.
- Documented policies: Ensure your financial, procurement, and reimbursement policies are written, accessible, and followed.
- Pre-audit internal review: Conduct a mock audit or internal desk review to catch issues before your auditor does.
- Training for program staff: Frontline teams need to understand allowable costs, timekeeping, and documentation protocols.
Conclusion: Make Your Audit an Opportunity, Not an Obstacle
Annual audits don’t have to be a source of stress or surprise. With proactive planning, clear documentation, and a solid understanding of your audit requirements, your organization can approach audit season with confidence and clarity.
Whether you’re managing a single federal grant or navigating a complex portfolio of awards, the key to audit readiness lies in building strong internal controls, maintaining organized records, and fostering a culture of compliance throughout the year.
Think of the audit not just as a compliance exercise, but as a valuable opportunity to strengthen transparency, improve financial systems, and demonstrate stewardship to funders, boards, and your community. Because when your audit tells a story of integrity, accountability, and preparedness it’s a story worth sharing.
How MissionGranted Helps You Stay Ready
At Smart Grant Solutions, we created MissionGranted because we saw how nonprofits and local governments were struggling to stay compliant across multiple grants and audits, especially with limited resources.
Our software:
- Maps audit triggers by funding stream
- Centralizes documentation tied to specific awards and cost categories
- Automates internal control alerts for missing or mismatched data
- Creates audit-ready reports that align with Uniform Guidance and grant-specific requirements
If you're preparing for an audit or just want to build a more resilient grant management process, MissionGranted is designed to support you efficiently, affordably, and compliantly.
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