Does my California nonprofit need an audit?

Three separate rules can force an audit on a California nonprofit, and boards regularly mix them up. Here they are in plain terms.

The California rule: $2 million

The Nonprofit Integrity Act says a charity registered with the California Attorney General must get audited financial statements from an independent CPA in any year its gross revenue hits $2 million or more. Two details matter here.

First, government grant money can be excluded from the $2M count if the grantor requires an accounting of how the funds were used. Plenty of organizations sit above $2M in total revenue but drop below it once government contracts are backed out. Check the math before assuming you’ve crossed the line.

Second, once the requirement applies, you also need an audit committee. It has to be separate from your finance committee, and your paid staff can’t sit on it.

The federal rule: the single audit

If your organization spends $1 million or more in federal awards in a fiscal year, you need a single audit. This is a deeper audit that tests your compliance with federal grant rules, not just your financial statements. (The threshold was $750,000 for years; it rose to $1 million for fiscal years beginning on or after October 1, 2024.) Note the verb: it’s federal money spent, not received. And pass-through funds count, meaning federal dollars that reach you through the state or county.

The fine-print rule: whatever your funders say

This is the one that actually catches most organizations first. Foundations, counties, and lenders routinely require audited financials as a condition of the grant or contract, no matter what state law says. A $900K organization with one county contract can be contractually required to audit while a $1.9M privately-funded one isn’t. Read your grant agreements. The requirement is usually in the boilerplate nobody reads.

What if none of these apply?

Then an audit is optional, and for a small organization it’s often the wrong purchase. A full audit runs roughly $10,000 to $25,000 and takes real staff time. Two cheaper alternatives cover most needs.

A review is a CPA checking that your statements are plausible, without the deep testing. It costs about half of what an audit does, and many funders accept it. A compilation is a CPA assembling your statements from your books with no assurance given. It’s cheap, and sometimes it’s all a bank wants.

The question isn’t “should we get an audit?” It’s “who is asking for one, and what will they accept?”

One warning from the operator’s side

The audit itself is the visible cost. The invisible one is preparation. An organization with messy books pays for the audit twice: once to the CPA firm, and once in months of staff time reconstructing records the auditors ask for. If your last audit was painful, the problem usually wasn’t the auditor. It’s that the monthly close wasn’t happening all year.

That preparation is part of what I do for organizations on my Partnership tier: clean monthly closes, schedules ready before fieldwork starts, and me in the room when the auditors have questions. If an audit requirement just landed on you and you’re not sure your books are ready for it, that’s a good fifteen-minute call.

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