Audits are an important legal accountability tool used by resource providers (donors, grantors, and others) to assure that resources are spent by nonprofit organizations in accordance with the resource providers intentions. This paper reports on audits that are required by the government of the United States for organizations receiving large amounts of federal financial assistance. Since 1990, nonprofits receiving substantial federal funds are required to undergo this rigorous and expensive form of federal oversight. We report on 11,841 nonprofit entities that underwent such audits, and the 3,592 audit firms that conducted them, from 1997 to 1999. Overall, compliance with federal regulations appears to be high. Our study indicates that smaller nonprofits, those that are new to government grants, and those with prior audit findings have a significantly higher rate of adverse audit findings. Perhaps for cost or other reasons, these nonprofits are being audited by less experienced auditors. Current federal funding does not provide any additional funds for Single Audit Act compliance. One policy implication of our work might be to provide federal funding specifically for Single Audit Act compliance to these nonprofits.
This publication is Hauser Center Working Paper No. 16. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers.