Preparing for an audit of your nonprofit organization

Most nonprofit organizations are required to present an annual audit, review or compilation report prepared by an independent accountant. The requirement might be incorporated into the organization’s bylaws or might be required by a government agency or funding organization.

The cost of an accounting procedure is substantial and depends on many factors. For discussion purposes here, we can estimate that the cost might typically run from 2% to 4.5% of a nonprofit company’s annual gross receipts. The cost of having an outside accountant gather these records and prepare record keeping and accounting reports significantly increases this cost.

If your nonprofit anticipates an audit, review, or compilation by an outside accountant, you can lower your costs by preparing several items in advance. Improved preparation can cut the cost of the accounting process by up to 50%.

A free printable version of this checklist is available on request through Raising Nonprofits.*

Assemble all of the following in one electronic folder

□ Journals that detail the organization’s business transactions and affected accounts

□ Ledgers for the fiscal year being audited

□ Bank statements and canceled checks

□ Payroll records and tax returns showing withholding for employees

□ IRS Form 1099s for independent contractors and consultants

□ Tax returns (990, 990-T)

□ Invoice and paid bills (receipts)

□ Receipts for credit card transactions

Have organized and readily available

□ Corporation or organizational documents

□ Policies related to financial management and controls

□ Tax exemption letters

□ Board or committee meeting minutes

□ Grant proposals, commitment letters and contracts with funding sources

□ Final reports submitted to outside entities

□ Contracts with vendors

□ Leases

□ Equipment maintenance agreements

□ Insurance policies (office contents, professional liability, etc.)

Get accounting records in order

□ Reconcile all bank accounts

□ Prepare Trial Balance (a report at the end of the accounting period that ensures debts equal credits

□ Accounts receivable schedule

□ Accounts payable schedule

□ Depreciation schedules

□ Expense account analyses requested by your auditor

□ Schedules of prepaid expenses for upcoming fiscal year

□ List of fixed asset additions and dispositions

□ Investment activities

*Tony Novak is a principal of Raising Nonprofits, a 501(c)(3) nonprofit organization.

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