The Not-for-Profit Horizon: Reflecting on 2025 and Charting the Course for 2026

As 2025 comes to a close, not-for-profit organizations must navigate a complex landscape reshaped by regulatory evolution, increased financial pressures, and heightened transparency expectations. While the year brought significant compliance challenges and operational headwinds, 2026 presents both opportunities and new requirements that demand proactive preparation.

2025 in Review: The Impact of Compliance and Financial Pressures

Organizations continued implementing complex accounting standards in 2025. Lease accounting under ASC 842 revealed challenges in identifying embedded leases and handling modifications, while revenue recognition under ASC 606 remained difficult, straddling the line between contributions and exchanges for grants and special events. Determining whether funding represented conditional contributions, unconditional contributions, or exchange transactions required increasingly sophisticated judgment from not-for-profit leadership.

Organizations new to federal awards, including undergoing single audits, struggled with subrecipient monitoring, procurement documentation, and time-and-effort reporting. Delays in the 2025 OMB Compliance Supplement and the government shutdown complicated matters, with delayed reimbursements forcing some organizations to tap credit lines or delay vendor payments.

The expiration of pandemic relief funding, combined with inflation and economic uncertainty, created sector-wide stress. Organizations faced declining donor retention, smaller gifts, increased competition for funding, and rising operational costs. Staff compensation pressures, occupancy increases, and program expense growth squeezed margins. Investment volatility affected endowment spending capacity, requiring organizations to revisit spending policies. Cash flow management became critical, particularly for smaller organizations lacking established credit facilities.

2026 Outlook: Successfully Navigating the Year Ahead

Single Audit Revisions

Significant Uniform Guidance changes take effect for fiscal years beginning on or after October 1, 2024, impacting most organizations' 2025 fiscal years audited in 2026. In 2026, the Single Audit threshold increases from $750,000 to $1 million, exempting numerous smaller organizations from Single Audit requirements and reducing compliance burden for entities spending between $750,000 and $1 million. However, organizations near the new threshold must monitor federal spending carefully, as crossing $1 million triggers significantly more extensive requirements. Even without the requirement to undergo a Single Audit, organizations must remain compliant with grantor agreements in the year ahead.

For organizations that will remain subject to the Single Audit, enhanced requirements demand more rigorous subrecipient risk assessments and ongoing monitoring. Updated procurement standards require written procedures covering all methods, conflict of interest policies, and documented decisions with revised thresholds. Time-and-effort reporting guidance has been clarified, but documentation standards have been elevated. Organizations must demonstrate that their systems produce accurate allocations. Internal control documentation expectations are increasing significantly, emphasizing formal risk assessment, control design documentation, and monitoring evidence.

Organizations should immediately review revised Uniform Guidance provisions and implement documented subrecipient risk assessment procedures, design time-and-effort reporting systems that withstand audit scrutiny and establish cost allocation methodologies with supporting documentation.

Compliance calendars should track all reporting deadlines, drawdown schedules, and monitoring requirements. Centralizing grant financial management under qualified personnel improves compliance outcomes and provides better cost tracking, though program staff must remain engaged in budget monitoring and variance explanations.

Artificial Intelligence: Opportunities and Governance Challenges

Artifical intelligence (AI) emerged as a transformative force in 2025 and will continue to significantly impact operations in 2026. Organizations are exploring AI for fundraising, program delivery, administrative efficiency, and data analysis. Applications include donor prospecting, personalized communications, grant writing assistance, client service chatbots, outcome prediction, and financial forecasting.

However, AI adoption brings substantial governance risks. Organizations must address data privacy when AI processes sensitive information, algorithmic bias that could produce discriminatory outcomes, and accuracy concerns requiring human oversight. Boards should develop policies addressing acceptable applications, data protection, quality control, and oversight requirements.

Regulators are developing guidance on AI use regarding data privacy compliance and appropriate charitable applications. Organizations should monitor developments and ensure implementations comply with emerging standards while considering ethical implications to prevent unintended harm to beneficiaries.

Financial Management and Compliance Priorities

Organizations must strengthen financial controls and governance frameworks to meet heightened regulatory scrutiny. Boards should formalize policies for conflicts of interest, whistleblower protection, document retention, and data privacy, coupled with quarterly enterprise risk assessments presented to audit committees. These assessments should quantify financial exposures, evaluate compliance risks, and document mitigation strategies with measurable monitoring metrics.

Robust financial planning now requires multi-year projections with scenario modeling across optimistic, expected, and pessimistic assumptions. Cash flow forecasting must account for grant reimbursement cycles, seasonal revenue patterns, and timing of major expenditures to prevent liquidity crises. Revenue diversification strategies reduce concentration risk from single funding sources or major donors, while formal reserve policies establish targets for operating, capital, and opportunity reserves.

Technology infrastructure directly impacts financial reporting quality and compliance effectiveness. Organizations should evaluate accounting systems for adequate internal controls, audit trail capabilities, fund accounting functionality, and grant management integration. Cloud-based solutions provide enhanced data security, disaster recovery capabilities, and real-time financial reporting.

As organizations increasingly seek ways to leverage AI tools for financial forecasting, variance analysis, anomaly detection, and fraud prevention, they must simultaneously implement governance frameworks ensuring data accuracy, appropriate human oversight, and compliance with emerging regulatory guidance. Critical cybersecurity measures include multi-factor authentication, segregation of financial system duties, regular penetration testing, incident response protocols, and adequate cyber liability insurance coverage.

Be Future Ready with Citrin Cooperman

Navigating 2026's complex regulatory landscape requires expertise and proactive preparation. Our Not-for-Profit Industry Practice, Digital and Cloud Services Practice, and Cybersecurity Practice help organizations strengthen financial management, enhance governance frameworks, implement new Single Audit requirements, develop AI use policies, and build robust compliance infrastructure. We collaborate with organizations to address these challenges strategically, ensuring they meet evolving regulatory demands while remaining focused on what counts: their vision and mission. For more information, reach out to John Eusanio or your Citrin Cooperman professional.