This blog provides a comprehensive checklist to help nonprofits streamline their audit preparation. From reviewing financial records to strengthening internal controls and ensuring compliance with regulations, following these steps will set your organization up for success.

Rooled specializes in supporting nonprofits through every stage of audit preparation, helping streamline processes for an efficient and confident audit experience.

Review Financial Records

Accurate and organized financial records form the foundation of a smooth and successful audit. Before the fiscal year closes, nonprofits should take the following steps to ensure their records are in order:

Ensure All Financial Transactions Are Recorded Correctly

Review your financial records to confirm that all transactions—both income and expenses—are properly documented. This includes verifying that entries are categorized correctly and align with your accounting policies.

Reconcile Accounts for Accuracy

Reconciling accounts ensures your financial statements accurately reflect your organization’s financial position. Regularly reconcile bank accounts, credit cards, and other accounts to identify and resolve discrepancies early.

Organize Supporting Documentation

Gather and organize all necessary documentation to back up your financial transactions. This includes:

• Receipts and invoices for expenses.
• Bank statements and deposit records.
• Documentation of grants, donations, and restricted funds.

A clear and organized system will not only make the audit process smoother but also demonstrate accountability and transparency to stakeholders.

Rooled’s financial services help nonprofits ensure their records are complete, accurate, and audit-ready. With our support, your organization can confidently approach the audit process.

Strengthen Internal Controls

Internal controls play a critical role in safeguarding a nonprofit’s assets and ensuring compliance with financial regulations. Auditors will assess the effectiveness of these controls, making it essential for nonprofits to review and strengthen them before an audit. Here’s how:

Review and Update Internal Control Policies

Examine your existing policies to ensure they align with your organization’s current operations and industry best practices. Update outdated controls and document any changes to maintain clarity and consistency.

Verify Segregation of Duties

Segregating duties reduces the risk of errors and fraud by ensuring that no single individual has control over all aspects of a financial transaction. For example:

• Separate responsibilities for authorizing expenses, processing payments, and reconciling accounts.
• Ensure proper oversight is in place for high-risk activities.

Conduct Internal Audits

Perform regular internal audits to identify weaknesses or inefficiencies in your internal controls. Addressing these issues proactively can help prevent challenges during the external audit process.

Rooled can assist nonprofits in reviewing and enhancing internal controls, providing expert guidance to ensure your organization is prepared for a thorough and successful audit.

Ensure Compliance with Regulations

Compliance with financial and tax regulations is a critical component of the audit process for nonprofits. Failure to meet these requirements can lead to audit findings, penalties, or loss of donor trust. To ensure a smooth and compliant audit, nonprofits should focus on the following areas:

Review Compliance with Grant Requirements and Restrictions

Grants often come with specific usage restrictions and reporting obligations. To maintain compliance:

• Confirm that funds were spent in accordance with grant agreements.
• Prepare detailed reports that align with funder requirements.
• Document any changes to grant terms and their impact on spending.

Document In-Kind Donations and Restricted Funds

Accurate documentation of non-cash contributions and restricted funds is essential:

• Assign fair market values to in-kind donations and maintain records of how they were used.
• Track restricted funds separately to demonstrate compliance with donor-imposed conditions.

Prepare Form 990 and Other Required Tax Documents

Ensure your Form 990 and any other relevant filings are complete, accurate, and filed on time. This includes:

• Reviewing financial data to ensure consistency across documents.
• Verifying that all required disclosures are included, such as executive compensation and lobbying activities.

Rooled specializes in nonprofit compliance services, helping ensure all necessary documentation is audit-ready and aligned with IRS and regulatory requirements.

Organize Documentation and Set Up for Success

Proper organization is key to ensuring a smooth and efficient audit process. Taking the time to prepare your documentation and establish a structured approach will help your nonprofit navigate the audit with confidence. Here are the steps to take:

Create an Accessible Audit File

Compile all relevant documents into a centralized, well-organized audit file. This should include:

• Financial statements, bank reconciliations, and general ledgers.
• Supporting documentation for transactions, such as receipts and invoices.
• Records of grants, donations, and any restricted funds.

Set Up a Timeline for Audit Preparation Tasks

Establish a clear timeline to ensure that all preparation tasks are completed on schedule. Include milestones for:

• Finalizing financial records and reconciliations.
• Gathering compliance documents, such as Form 990 and grant reports.
• Reviewing and updating internal controls.

Prepare the Audit Team

Ensure that your internal team is ready to engage with auditors and respond promptly to their inquiries:

• Designate specific team members to address various aspects of the audit.
• Hold a pre-audit meeting to review key documents and discuss potential questions.
• Foster open communication between the audit team and the auditors.

Rooled’s audit readiness services help nonprofits organize and prepare efficiently, ensuring all documentation is in order and your team is fully equipped for a successful audit process.

Preparing for an audit may feel daunting, but with a structured checklist and proactive planning, your nonprofit can approach the process with confidence. By reviewing financial records, strengthening internal controls, ensuring compliance with regulations, and organizing documentation effectively, you can set the stage for a smooth and successful audit.

Rooled’s expertise in audit preparation can help your organization navigate this critical process with ease. Contact us today to ensure your nonprofit is fully prepared for its year-end audit and ready to maintain financial transparency and trust with stakeholders.