An annual audit is a key part of maintaining transparency and financial health for not-for-profit organizations. Proper preparation can help reduce stress, keep the audit on schedule, and ensure a smooth process.
To help you get started, here’s an overview of what your organization should do to prepare for an audit:
1. Close the Books Accurately
Before the audit begins, ensure all accounts are properly reconciled and financials are finalized:
- Reconcile all accounts – including bank accounts, credit cards, and investment accounts.
- Post necessary year-end adjustments – such as accruals, depreciation, and adjusting journal entries.
- Review net asset classifications – verify that restricted and unrestricted net assets are properly presented in accordance with donor intent and accounting standards.
2. Prepare Required Documentation
Having essential documents ready can improve audit efficiency. Common items auditors typically request include:
- Year-end trial balance
- Full general ledger
- Year-end financial statements
- Bank statements and reconciliations
- Investment account statements
- Loan and debt documents, including amortization schedules and current statements
- Lease agreements
- Board meeting minutes for the year under audit
- Fixed asset schedules, including details of additions and disposals
- Payroll records, including W-2s, pay period summaries, and related tax filings
- Revenue by Donor reports
- Grant agreements and requirements
3. Review Internal Controls
Strong internal controls help prevent errors and fraud and are a key focus during audits:
- Review and document current internal control procedures.
- Update your process narratives to reflect any changes from the previous year.
Common areas that auditors often request documentation for include:- Accounts receivable and billing
- Payroll processing
- Cash handling
- Disbursement and purchasing processes
- Physical controls
- Journal entries
- Donations recording
4. Communicate with the Auditor
Proactive communication helps set expectations and avoid delays:
- Reach out to your auditors early in the process.
- Designate a main contact person at your organization to coordinate audit requests and communications.
- Establish a clear timeline with deadlines for document delivery and audit milestones and stick to it.
- If feasible, consider providing your auditors with accountant access to relevant accounting or donor software to expedite review.
5. Organize All Documentation
Organization is key. Keep all requested and supporting documents in one secure, accessible location—ideally a shared folder or audit portal. Group documents by category (e.g., cash, revenue, expenses, fixed assets) to make retrieval easier for both your team and the auditors.
Final Thoughts
Audit preparation doesn’t need to be overwhelming. By closing your books accurately, organizing key documentation, and maintaining open communication with your auditors, you can ensure the process is efficient and stress-free.
If you have questions about preparing for your audit or need help gathering documents, reach out to your auditors for help.
Please contact the Not-for-Profit Niche team at Gilliam Bell Moser LLP for further guidance.
