Avoiding Audit Pains: The Best Cures for Nonprofits

For nonprofits with a June 30 fiscal year-end, the spring season presents a golden opportunity—not just for fundraising galas and grant writing—but for laying the groundwork for a smooth and stress-free financial statement audit. While the word audit might conjure anxiety, the reality is that a bit of smart prework now can prevent a cascade of headaches later.

Here’s a closer look at common audit pain points—and how a little preparation can help your team avoid them entirely.

1. Missing or Incomplete Documentation

The Pain:

Auditors ask for detailed support for transactions, especially around year-end accruals, large donations, and grant expenses. Scrambling to find backup in July (or worse, during vacation season) slows down the process and reflects poorly on internal controls.

The Cure:

Start compiling documentation now for major transactions, including grant agreements, donor restrictions, lease amendments, and board minutes.

Ensure vendor contracts and invoices are well-organized and categorized.

Centralize document storage (e.g., in a shared drive) so finance, development, and program teams can all contribute.

2. Unreconciled Accounts

The Pain:

Bank, investment, and credit card accounts that aren’t reconciled through year-end create immediate red flags for auditors. Worse, delays in reconciling can hide errors or misstatements that cost time (and credibility) to fix.

The Cure:

Fully reconcile all accounts through April now, and schedule May and June reconciliations to be completed within 10 business days of month-end.

Pay attention to outstanding checks or deposits in transit—long-outstanding items should be reviewed and addressed.

3. Inadequate Grant Tracking

The Pain:

Nonprofits often receive restricted funding but fail to track restrictions accurately. During the audit, this can lead to major adjustments and even misstatements in net asset classification.

The Cure:

Review your grant tracking schedule to ensure revenue and expenses are aligned to donor restrictions.

Make sure your accounting system mirrors the grant terms, with clear documentation of time and purpose restrictions.

4. Weak Year-End Cutoff Procedures

The Pain:

Improperly recording revenue or expenses in the wrong period is a common audit finding. It can lead to major audit adjustments and management letter comments.

The Cure:

Educate your team on cutoff procedures: revenue earned and expenses incurred before June 30 must be recorded in the current year—even if the cash hits later.

Keep an eye on June invoices received in July and ensure they’re captured in accounts payable accruals.

5. Lack of Communication with Your Auditor

The Pain:

Surprise requests, unclear expectations, and last-minute adjustments drag out audits and increase fees.

The Cure:

Schedule a pre-audit meeting in May to review the timeline, deliverables, and any new standards (e.g., lease accounting under ASC 842).

Ask your auditor for a PBC list (“Prepared By Client” list) and start working through it early.

Flag any unusual transactions—like new programs, changes in accounting policies or new material audit estimates—that may require extra disclosure or technical consultation.

Final Thought: A Proactive Mindset Goes a Long Way

An audit doesn’t need to be a disruptive or stressful event. With proactive planning, clear documentation, and good communication, your nonprofit can demonstrate strong stewardship and internal controls. That makes for a smoother audit—and builds confidence with your board, funders, and the public.

So this spring, in between finalizing grant reports and planning summer programs, set aside time to invest in your audit readiness. Your future self—and your auditor—will thank you.