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A quick look at audit prep

Are you looking ahead to an internal financial audit? Whether the audit is voluntary or required by a funding or regulatory agency, preparation can help facilitate the audit process.

Who should arrange the audit?

Responsibility for an internal financial audit falls to the board of directors. Typically, the board selects an audit committee — which could be the same as the finance committee. Then, the audit committee selects and approves the auditor and ultimately reviews the auditor's findings.

In most cases, the auditor is an accounting firm or an individual CPA. In either case, the auditor must not have any connection with a board member or the nonprofit itself that could trigger questions about conflict of interest.

The audit committee should review the auditor's letter of engagement, which sets a road map for the audit. The committee should clarify any questions or concerns with the auditor, including:

  • Scope
  • Requirements of staff
  • Timeline
  • Fees (which can be in the $10,000 to $20,000 range, depending on the size of the nonprofit and the complexity of the audit)
  • Whether the audit meets specific standards set by external funders

Finally, the audit committee should establish procedures and goals for the audit and communicate them to everyone involved.

What materials should be assembled before an audit?

The auditor will need access to key journals, ledgers and records, such as:

  • Payroll records: journals, time sheets
  • Tax records: state returns, federal returns
  • Bank statements: year-end reconciliations, canceled checks, deposits
  • Investment statements: year-end reconciliations, realized gains and losses
  • Accounts receivable: contributions, grants (including requirements and restrictions on use of the funds)
  • Accounts payable: vendor lists, invoices, receipts
  • Prepaid expenses: rent, insurance, reconciliations
  • Property and equipment: capitalization, depreciation, maintenance expenses
  • Debt: amortization schedules (including principal and interest), notes payable, line of credit agreements

You might also be asked to provide:

  • Articles of incorporation or other organizational documents
  • Documentation of internal financial controls
  • Financial reports submitted to donors
  • Budget information
  • Contracts with vendors or service providers
  • Copies of insurance policies

What accounting tasks should be completed before an audit?

You can make the auditor's job easier by settling your finances and preparing fiscal records before the audit. For example, you might:

  • Reconcile bank, prepaid and accrual accounts
  • Prepare accounts receivable and accounts payable schedules
  • Complete expense account analyses
  • Summarize investments (and interest earned)



MissionBox editorial content is offered as guidance only, and is not meant, nor should it be construed as, a replacement for certified, professional expertise.



National Council of Nonprofits: Step 2: Preparing for the audit

National Council of Nonprofits: The nonprofit audit guide: Getting ready for the audit checklist (2013)



Baltimore-based writer and educator