Does your nonprofit have to undergo an independent audit this year? With plenty of time and planning, you can be prepped and ready for your upcoming nonprofit accounting audit.

At Capital Business Solutions, we understand how scary audits can seem at first. Audits always have a negative connotation associated with them, making it hard to see them as a healthy way to keep your nonprofit accounting processes safe.

Audits, however, are actually good things – and once you’ve prepped your team and your organization for your upcoming audit, you’ll feel at ease and ready to take on the next one.

Check out our tips for ways to prepare for your upcoming nonprofit accounting audit:

8 Tips to Prepare For A Nonprofit Accounting Audit

8 Ways to Prepare for a Nonprofit Accounting Audit

1. Be Aware of Federal and Your State Law Audit Requirements

Not every organization is required to have an independent audit. However for some nonprofits, the federal and state regulations require them to conduct an independent audit. This could be due to their annual budget or the source of their funding.

While you may not need to understand the exact federal and state law audit requirements for your organization, it is important to at least be aware. The following resources can help:

Nonprofit Accounting Audit Resources

State Law Nonprofit Audit Requirements
Federal Law Nonprofit Audit Requirements

2. Hold a Pre-Audit Meeting

A pre-audit meeting is a meeting between the nonprofit staff who will be working with the auditors and the audit team. This initial consultation is very helpful in figuring out how the actual audit process will work.

During your pre-audit meeting you will be asked specific questions regarding documentation, timeline, and the needs of the auditors throughout the audit.

Examples of questions you might be asked:

  • Where there any major operational changes this year?
  • How does your nonprofit minimize fraudulent reporting?
  • Are you thinking about changing any of your accounting methods?
  • Are there any areas that require special attention due to financial risk?

3. Assemble Your Documentation

Using your pre-audit meeting as your guide, you and your nonprofit audit team will be able to prepare the necessary documents needed during your auditor’s field work.

Common Items an Auditor Will Review
While there are many documents/items that an auditor will review, below are just a few examples of what to expect/prepare:

  • Year-end reconciliation statements and bank statements;
  • List of grant funds already received, and those that are expected, but not yet received;
  • Fixed assets and depreciation schedule;
  • List of physical items that you are intending to sell;
  • All grant awards and related correspondence;
  • General ledger for the fiscal year;
  • Accounting manual and financial management policies;
  • Payroll tax reports, W2’s, 1099’s, timekeeping records, etc.;

During your pre-audit meeting with your auditor, you will be able to ask more specific questions about documentation that you should prepare for your nonprofit audit.

4. Plan for the Auditor’s Field Work

Most likely, an auditor will visit your office to conduct their field work. This is because auditors want to see where your financial operations take place.
To make your auditor’s visit easier, it is best to have someone coordinate the logistics of the visit. This person should organize some of the major details like,

  • Where will the auditor’s sit as they are reviewing documents?
  • Will they need internet access?
  • How many people will be visiting your office?

5. Be Really Organized!

One of the best things you can do to prepare for your nonprofit accounting audit is to be really organized. Take advantage of your pre-audit meeting to ensure you have all the documents ready for the auditors. This can save you a considerable amount of time and money.

Also make sure to give yourself enough time to get everything together. Preparing for an independent audit takes time and shouldn’t be rushed.

6. Communicate Throughout the Process

One of the best ways to keep the nonprofit audit process easy and stress-free is to communicate early and often. There can be a lot of moving pieces as you work your way though the audit, so make sure to keep your team involved in what is happening.

After the pre-audit meeting, send a recap and make sure everyone is on the same page. As you’re gathering your documentation, let everyone know what documentation you’re currently working looking for / organizing.

The more you communicate about what is currently happening and the plans going forward, the better you’ll feel (because you’ll be organized) and the better your staff will feel. It can also bring your accounting team closer together, and end up being a teambuilding type moment.

Not only should you communicate with your team, but you should regularly communicate with your auditing firm throughout the process.

7. Have Realistic Expectations

Your audit responsibilities should be clearly listed in your engagement letter with the auditing firm. Knowing what is expected of you – and going forward – can help you set realistic audit expectations.

Not sure what to expect? If you have friends or colleagues who work for nonprofits in the area, why not ask them about their experience going through an audit. They may have additional tips for preparing, staying prepared year-round, and getting through an audit successfully.

8. Prepare to Tell the Board

After you go through with the audit, you’ll have to tell the board how everything went. Why do you have to tell the board? Well, they need to understand the financial statements and the implications of the opinion letter.

But because the board may not be used to seeing boring financial statements, it might be worth refreshing them on the statements and GAAP principles. This can make the actual review after the audit much easier.

Capital Business Solutions provides accounting software for nonprofits, government agencies and other municipal entities. Our accounting software can help your organization streamline and strengthen your internal accounting procedures, allowing you to focus on what matters most – your mission.

Learn more about our accounting software solutions by visiting