The Benefits and Costs of a Single Audit: Evidence from the Nonprofit Sector

• In Event: Auditing of Local Governments and Nonprofits

Abstract

Single Audits require additional investments of time and resources by nonprofit organizations. However, Single Audits may also signal a higher quality audit which may result in increased donations. In this study, we consider both the benefits and the costs associated with a Single Audit, an examination that is likely common among nonprofit organizations when deciding whether to accept federal funding that would trigger such an audit. We first examine the impact of having a Single Audit on donations. We then extend the work of Vermeer et al. (2009) that finds an association between a Single Audit and audit fees. Our extension incorporates the consideration of the impact of a Single Audit on total accounting fees, inclusive of external audit as well as other other accounting fees. Over the 1998 – 2003 period, we find that the Single Audit is, in fact, positively associated with donations and accounting fees. These results are consistent with the notion that a Single Audit involves a complex cost-benefit decision. These findings have policy implications as the Office of Management and Budget (OMB) contemplates new thresholds for triggering a Single Audit.

Authors

• Tammy R Waymire, Northern Illinois University

• Thomas Zachary Webb, Mississippi State University