Nonprofit Accounting & Advisory FAQs
Frequently Asked Questions About Nonprofit Accounting
Running a nonprofit organization comes with unique financial, tax, and compliance responsibilities. Whether you’re managing donor funds, preparing for an audit, maintaining tax-exempt status, or navigating federal grant requirements, having the right accounting partner can help your organization stay focused on its mission.
Below are answers to some of the most common questions we receive from nonprofit leaders across Minnesota, the Midwest, and beyond.
What accounting services do nonprofits need?
Most nonprofit organizations require a combination of accounting, tax, assurance, and advisory services. Depending on your organization’s size and funding sources, services may include:
- Financial statement audits, reviews, or compilations
- Form 990 preparation
- Budgeting and forecasting
- Outsourced accounting and bookkeeping
- Internal controls and fraud prevention
- Board reporting
- Cash flow planning
- Grant compliance
- Strategic planning
- Outsourced CFO or Controller services
An experienced nonprofit CPA can tailor services to your organization’s needs as it grows.
Does my nonprofit need an audit?
Not every nonprofit is required to have an audit. Requirements depend on factors such as:
- State regulations
- Grant agreements
- Federal funding
- Lender requirements
- Board or donor expectations
Even when an audit is not required, many organizations choose one to strengthen financial transparency and build confidence with donors and stakeholders.
What is the difference between an audit, review, and compilation?
Each level of service provides a different degree of assurance.
Audit
Provides the highest level of assurance through extensive testing and evaluation of financial statements.
Review
Provides limited assurance using analytical procedures and inquiries.
Compilation
Assists with preparing financial statements without providing assurance on their accuracy.
Your CPA can help determine which option best fits your organization’s needs.
What is a Single Audit?
A Single Audit is required for certain nonprofit organizations that expend federal awards above established federal thresholds during a fiscal year.
Single Audits evaluate both:
- Financial statements
- Compliance with federal program requirements
Organizations receiving significant federal funding should work with a CPA firm experienced in Uniform Guidance requirements.
What is Form 990?
Form 990 is the annual information return most tax-exempt organizations file with the IRS.
The return includes information about:
- Programs and mission
- Governance
- Executive compensation
- Financial activities
- Public support
- Compliance
Because Form 990 is publicly available, it also serves as an important communication tool for donors, grantors, and the public.
Does every nonprofit have to file Form 990?
Most tax-exempt organizations must file an annual return with the IRS.
Depending on your organization’s size and activities, this may include:
- Form 990
- Form 990-EZ
- Form 990-N (e-Postcard)
- Form 990-PF for private foundations
Failure to file for three consecutive years can result in automatic revocation of tax-exempt status.
What is unrelated business income (UBI)?
Unrelated Business Income (UBI) is income generated from activities that are:
- Regularly carried on
- Not substantially related to your exempt purpose
Examples may include advertising income, certain rental activities, or operating a business unrelated to your mission.
Organizations with UBI may need to file Form 990-T and pay unrelated business income tax.
How can nonprofits improve internal controls?
Strong internal controls help reduce fraud risk and improve financial accuracy.
Common best practices include:
- Segregation of duties
- Board oversight
- Approval policies
- Regular bank reconciliations
- Expense review procedures
- Restricted fund tracking
- Technology and cybersecurity controls
Internal controls should evolve as your organization grows.
Should our nonprofit outsource accounting?
Many nonprofits benefit from outsourced accounting services because they provide:
Outsourcing allows leadership to focus more time on advancing the organization’s mission.
How often should nonprofits prepare financial reports?
Most organizations should prepare monthly financial statements.
Regular reporting allows leadership and boards to monitor:
- Budget performance
- Cash flow
- Program expenses
- Grant activity
- Fund balances
- Financial trends
Timely reporting supports better strategic decision-making.
What financial statements should nonprofits prepare?
Nonprofit organizations typically prepare:
- Statement of Financial Position
- Statement of Activities
- Statement of Functional Expenses
- Statement of Cash Flows
- Notes to the Financial Statements
These reports provide donors, boards, and funding agencies with a complete picture of financial health.
What industries does Boyum Barenscheer serve within the nonprofit sector?
Our nonprofit team works with organizations across a wide variety of missions, including:
- Arts and culture
- Education
- Faith-based organizations
- Foundations
- Health and human services
- Membership organizations
- Trade associations
- Social clubs
- Social service organizations
- Sports and recreation organizations
How can nonprofit organizations prepare for an audit?
Preparing throughout the year makes the audit process more efficient.
Helpful steps include:
- Keeping financial records organized
- Reconciling accounts monthly
- Documenting significant transactions
- Maintaining grant documentation
- Reviewing internal controls
- Preparing schedules before fieldwork begins
Working with your CPA throughout the year can help reduce surprises during the audit.
Why should nonprofits work with a CPA firm that specializes in nonprofit organizations?
Nonprofit accounting differs significantly from for-profit accounting.
A nonprofit-focused CPA understands:
- Fund accounting
- Donor restrictions
- Grant compliance
- Federal and state reporting
- Board governance
- Tax-exempt regulations
- Financial reporting standards
Choosing an advisor with nonprofit experience helps organizations remain compliant while supporting long-term financial sustainability.
Partner with a Nonprofit Accounting Team That Understands Your Mission
At Boyum Barenscheer, we understand that nonprofit organizations face increasing financial, regulatory, and operational challenges while working with limited resources. Our nonprofit specialists provide practical guidance, responsive service, and proactive advice that helps organizations strengthen financial operations, maintain compliance, and focus on serving their communities.
Whether your organization needs an audit, Form 990 preparation, outsourced accounting, strategic planning, or advisory services, our team is ready to help.