What Should a Nonprofit Look for When Choosing an Audit Firm?
Choosing a nonprofit audit firm should involve more than comparing fees.
Technical capability matters, but so do nonprofit experience, communication, project management, capacity, staff continuity, firm ownership, work location, and whether any part of the engagement is outsourced or offshored.
The right audit firm should be able to explain not only how it performs the audit, but also who will perform the work, who is accountable for the engagement, and how the firm is structured.
Look for Real Nonprofit Experience
Nonprofit accounting and auditing have their own technical and operational complexities.
A prospective audit firm should be comfortable with areas such as:
contributions and donor restrictions;
grant accounting;
functional expense reporting;
Form 990;
federal awards;
Single Audits;
gifts-in-kind;
board governance;
internal controls; and
nonprofit financial statement presentation.
Ask how much nonprofit work the firm performs and whether the proposed engagement team has direct experience with organizations similar to yours.
Industry experience can reduce the amount of time your team spends explaining basic nonprofit concepts and can help the auditor identify issues earlier.
Understand Who Will Actually Perform the Audit
The people in the proposal are not always the people doing most of the work.
Ask directly:
Who will be the engagement partner?
Who will manage the audit day to day?
Which team members will perform fieldwork?
How experienced are they with nonprofits?
Will the same people likely return next year?
How accessible is the partner during the engagement?
A strong relationship with the engagement partner is valuable, but the quality of the overall audit experience often depends heavily on the manager and staff assigned to the project.
Ask About Firm Ownership
Nonprofits should understand who owns the audit firm they are hiring.
Accounting firms today may be structured in different ways, including traditional partner-owned firms, firms backed by private equity, alternative practice structures, or larger organizations with outside capital relationships.
That does not automatically make one structure better or worse.
But boards and audit committees should understand the model.
Consider asking:
Is the CPA firm owned by its working partners?
Has the firm accepted private equity or outside investment?
Is the audit practice part of an alternative practice structure?
Who ultimately controls decisions about staffing, pricing, technology, and client acceptance?
Has ownership changed recently?
Is a sale, merger, or recapitalization likely to affect the engagement team?
Ownership can influence a firm's incentives, staffing model, growth strategy, and long-term continuity.
The important thing is transparency.
Ask Whether Any Audit Work Is Offshored
This is an increasingly important question.
Some accounting firms use offshore teams or third-party service centers to perform portions of audit work, data processing, workpaper preparation, or other engagement procedures.
A nonprofit should know if that is part of the delivery model.
Ask:
Will any portion of our audit be performed outside the United States?
Will any client data be accessed offshore?
Are offshore personnel employees of the firm or third-party contractors?
What procedures will they perform?
What information will they have access to?
What cybersecurity and confidentiality safeguards apply?
Will we be informed if the staffing model changes?
Offshoring is not inherently the same thing as poor-quality work, but it can affect communication, data handling, continuity, and the client's understanding of who is performing the engagement.
If your organization has a preference for a fully U.S.-based engagement team, ask that question before signing the engagement letter.
Evaluate Staff Continuity
Constant turnover creates cost for both the audit firm and the nonprofit.
If a new audit team has to relearn the organization every year, management may repeatedly explain the same programs, controls, grants, systems, and accounting policies.
Ask the prospective firm:
What is turnover like on the audit team?
How long have the proposed manager and partner been with the firm?
How often do nonprofit clients see a new team?
Does the firm intentionally keep teams together from year to year?
Continuity helps create institutional knowledge and can improve efficiency over time.
Ask About Capacity and Timing
A technically strong audit firm is not a good fit if it does not have the capacity to complete the engagement when you need it.
Before selecting a firm, confirm:
when planning will begin;
when the PBC list will be issued;
expected fieldwork timing;
target draft financial statement date;
target report issuance date; and
what deadlines the nonprofit must meet.
Also ask what happens if the audit is delayed.
If the firm is already operating near capacity, a small delay on the client's side can sometimes push the engagement substantially later.
The timeline should be realistic for both teams.
Evaluate Project Management
Good audit project management should be visible before the audit starts.
A prospective firm should be able to explain:
how requests will be organized;
how documents will be exchanged securely;
how outstanding items will be tracked;
how often status updates will occur;
who resolves technical questions;
how deadlines are monitored; and
how issues are escalated.
A clear process can make a significant difference in how disruptive the audit feels to the organization.
Understand the Communication Style
Audit quality and client experience are not the same thing, but both matter.
Ask how the firm communicates during the engagement.
Does the team provide regular status updates?
Will management know which items are still outstanding?
Are questions consolidated or sent one at a time?
Is the partner available when significant issues arise?
Will the board or audit committee receive clear communication at the end of the engagement?
The best audit relationships tend to involve direct, proactive communication rather than surprises near the reporting deadline.
Confirm Single Audit Capability if Applicable
If your organization receives significant federal funding, make sure the firm has appropriate Single Audit experience.
Ask:
How many Single Audits does the firm perform?
Does the team understand Uniform Guidance requirements?
Is the firm familiar with SEFA preparation and federal program testing?
Does the firm participate in the AICPA Governmental Audit Quality Center, if applicable?
Has the firm received findings related to Single Audit quality in peer review or regulatory inspection?
A firm that performs ordinary nonprofit financial statement audits may not necessarily have deep Single Audit experience.
Review Peer Review and Quality History
CPA firms that perform audits are generally subject to peer review or other quality oversight requirements depending on their practice.
Nonprofit boards should consider asking:
Is the firm enrolled in peer review?
When was the firm's last peer review?
What type of report did the firm receive?
Were there any significant findings?
Is the firm willing to provide a copy of its most recent peer review report?
Quality-control information provides useful context beyond marketing materials and references.
Ask About Technology and Data Security
An audit requires access to sensitive financial, payroll, donor, banking, and governance information.
Understand how the firm handles that information.
Ask about:
secure client portals;
document retention;
multifactor authentication;
email security;
third-party software;
offshore access;
data hosting; and
cybersecurity policies.
Sensitive nonprofit information should not be exchanged casually through unsecured channels.
Understand What Is Included in the Fee
The lowest proposed audit fee is not always the lowest total cost.
Ask whether the quoted fee includes:
financial statement preparation;
required disclosures;
Single Audit procedures;
tax preparation;
Form 990;
travel;
additional meetings;
board presentations;
accounting assistance; and
out-of-scope work.
Also ask what circumstances could result in additional billing.
A transparent proposal should make clear what the organization is buying.
Ask About Independence and Additional Services
Some nonprofits want their audit firm to provide other services, such as tax preparation, financial statement assistance, or technical accounting support.
Those services may be permissible in many circumstances, but applicable independence rules must be considered.
Ask the firm how it evaluates independence and whether any requested nonattest services could affect the audit relationship.
Speak With References
References can be useful when the organizations are actually comparable to yours.
Ask references questions such as:
Did the audit finish on time?
Was the team stable?
Were there unexpected fees?
Was communication proactive?
Did the team understand nonprofit accounting?
How responsive was the partner?
Would you hire the firm again?
The final question is often the most revealing.
Questions Every Nonprofit Should Ask a Prospective Audit Firm
Before selecting an auditor, consider asking:
How many nonprofit audits do you perform each year?
What experience does our proposed team have with organizations like ours?
Who will actually perform the fieldwork?
How involved will the engagement partner be?
Who owns the firm?
Is the firm private-equity backed or externally capitalized?
Has firm ownership changed recently?
Will any portion of our audit be outsourced or performed offshore?
Will any of our financial or donor data be accessed outside the United States?
What is your staff turnover rate?
Will we likely have the same team next year?
Do you have capacity to meet our reporting deadline?
How do you manage PBC requests and outstanding items?
How often will we receive status updates?
What Single Audit experience do you have?
What was the result of your most recent peer review?
How do you protect client data?
What services are included in the quoted fee?
What circumstances could cause additional billing?
Can you provide references from similar nonprofit organizations?
The Bottom Line
Choosing an audit firm is ultimately a decision about trust, technical capability, people, and accountability.
Nonprofit leaders should understand more than the firm's credentials and fee.
They should know:
Who owns the firm.
Who will actually perform the work.
Where that work will be performed.
Whether outside investors or private equity are involved.
Whether any work or data access is offshored.
Whether the team has the experience and capacity to deliver what was promised.
The strongest audit relationship is one where the organization understands exactly who it is hiring and the audit firm is transparent about how the engagement will be delivered.
How Bilotta & Company Approaches Nonprofit Audits
Bilotta & Company, CPAs, LLC is an independently owned CPA firm providing audit, review, Single Audit, tax, and advisory services to nonprofit organizations.
Our audit work is performed by our U.S.-based team, with direct access to firm leadership and a focus on staff continuity, clear project management, and proactive communication.
We believe organizations should know who is responsible for their work and how their financial information is being handled.
For nonprofit boards and leadership teams evaluating audit firms, we welcome direct questions about our ownership, staffing, quality-control processes, timeline, technology, and how the engagement will be delivered.
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This article is provided for general educational purposes and is intended to help nonprofit organizations evaluate prospective audit firms based on their individual needs and circumstances.