Non-Profit Audit Checklist: Be prepared for your year-end audit

An audit helps improve an organization’s financial transparency, builds donor trust, and ensures compliance with regulations. Common reasons why you might conduct a nonprofit audit are to improve your charitable organization’s financial position, transparency, accountability, and bookkeeping practices. In short, it helps you keep track of your donations and expenses and ensures no malpractice behind closed doors.

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An audit will also flag areas for improvement within your operations or fundraising plan, such as inefficient processes or unnecessary spending. Even well-prepared nonprofit organizations encounter predictable audit challenges that can extend timelines and create findings. At https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ G-Squared Partners, our experience has shown that most audit issues fall into a few key categories—and with proper preparation, they’re largely preventable.

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Explore essential practices and insights for effectively auditing nonprofit organizations, focusing on unique financial and compliance aspects. Auditors must also provide a detailed report outlining all findings and recommendations so that nonprofits can take appropriate action to address any issues uncovered during the audit process. This allows organizations to remain compliant while also giving donors greater assurance that their funds are being used properly and in accordance with stated goals and objectives. This is a perfect example of the deficiency inherent in off-the-shelf accounting software in their inability to generate financial statements for your audit. If your auditor creates financial statements for your audit, then they will report a deficiency in operation on your audit report. The duration of the independent audit can vary according to whom the audit is due, board members, for example.

Examples of Control Deficiencies

• It’s about building a culture of compliance that encompasses the whole organization.
• The entire process, from selecting a nonprofit auditor to implementing the audit’s findings, can take anywhere between 8-20 weeks.
• Compliance audits investigate your organization’s obedience to federal, state, and local laws.
• In the years when the nonprofit does not have an independent audit the nonprofit could elect to have its financial statements reviewed instead.
• This is a perfect example of the deficiency inherent in off-the-shelf accounting software in their inability to generate financial statements for your audit.

Immediately after you receive the final auditor report, your nonprofit must begin making all suggested changes. You must start working with an auditor early enough to meet external and internal deadlines. It’s recommended that you find and begin working with the auditor 4 to 12 weeks before the deadline. When auditing becomes a standard practice within your organization, your board, staff, volunteers, and donors understand their responsibilities and hold themselves and others accountable.

When should a nonprofit start having audits?

• For example, an endowment fund may stipulate that only income generated can be used for specific programs, while the principal remains intact.
• Based on the results of these tests, the auditor will give an opinion on the organization’s financial statements.
• The agent may also quiz staff as to the state of internal controls and other procedures that ensure accuracy and integrity.
• Internal controls are another critical focus area as they help organizations prevent and detect errors or fraud.
• This will involve creating controls or procedures to ensure that corrective action is taken should any issues arise during future audits.

By identifying and resolving these common issues before auditors arrive, organizations experience significantly smoother audit processes with fewer findings and reduced timelines. All of that can make the process of preparing for a accounting services for nonprofit organizations nonprofit audit complex, particularly for nonprofit organizations with under-resourced finance functions. Working with an external audit preparation partner can help organizations take a more proactive approach to their annual financial statement audit. Major donors, government agencies, and corporate partners frequently require audited financials to approve grants or renew an organization’s funding.

• These steps include information gathering, testing of records and transactions, and then the rendering of an opinion.
• When auditing becomes a standard practice within your organization, your board, staff, volunteers, and donors understand their responsibilities and hold themselves and others accountable.
• Then take advantage of Foundation Cloud’s ability to seamlessly integrate with leading financial accounting systems like Blackbaud Financial Edge and Sage to optimize your financial management and reporting.
• This comprehensive checklist can help you streamline the audit preparation process so every detail is ready for a thorough financial review.
• Internal audits are better than nothing but don’t necessarily increase public transparency and accountability—since an internal team could be the root of the problem.
• Unlike for-profit entities, nonprofit revenue often involves donor restrictions or grant conditions.

Many nonprofit organizations both large and small need to undergo a financial statement audit every year. Preparing for a nonprofit audit can be overwhelming and anxiety-filled, especially if it’s your first audit or you don’t have a strong and experienced financial team. Meanwhile, accurate documentation of all financial activities provides auditors with the necessary information to assess the organization’s financial health. These requirements typically include detailed documentation, internal controls, and adherence to established accounting standards. Proper preparation for audit requirements involves thorough record-keeping, regular internal reviews, and accurate documentation of all financial activities.

Nonprofit Audit Checklist: How to Prepare for a Smooth Audit

Meanwhile, transparency in financial reporting builds trust with donors and stakeholders. By providing clear and detailed accounts of financial activities, non-profits demonstrate accountability and responsible management. Compliance with regulatory standards is also essential for maintaining the organization’s good standing. Auditors assess whether the non-profit adheres to relevant laws and guidelines governing financial practices.