How to Survive Your Non-Profit Audit: A CFO's Battle-Tested Preparation Guide

The controller of a regional health services non-profit once told me about her first audit as a new hire.

"I asked my predecessor for the audit binder," she said. "She pointed to three cardboard boxes and said 'good luck.'"

Inside those boxes: unsorted bank statements, receipts in grocery bags, board minutes that hadn't been filed in two years, and a chart of accounts that hadn't been updated since 2008.

The audit took four months. The fees tripled the original estimate. The auditors issued a qualified opinion—a polite way of saying they couldn't fully verify the numbers.

That organization is still recovering their reputation.

Your audit doesn't have to be like this. With proper preparation, audits can be straightforward, efficient, and even—dare I say—boring.

Here's the battle-tested guide that makes that possible.

Understanding What Auditors Actually Want

Auditors aren't adversaries (despite how it sometimes feels). Their job is to verify that your financial statements fairly represent your organization's financial position. They're looking for evidence to support the numbers you've reported.

What auditors care about most:

1. Existence: Are assets and liabilities real?
2. Completeness: Have all transactions been recorded?
3. Accuracy: Are amounts recorded correctly?
4. Cutoff: Are transactions recorded in the correct period?
5. Classification: Are items properly categorized?
6. Presentation: Do financial statements meet accounting standards?

When you understand what they're verifying, you can organize your documentation accordingly.

The 90-Day Audit Preparation Timeline

90 Days Before: The Assessment Phase

Review prior year findings: Pull out last year's management letter. What did the auditors recommend? What adjustments did they propose? Address these issues now—before they become repeat findings.

Confirm engagement terms: Contact your auditor to confirm timing, fee estimates, and any changes in audit approach. If you're approaching the Single Audit threshold ($750,000 in federal expenditures), discuss additional requirements.

Assess your records: Honestly evaluate the state of your books. Are reconciliations current? Is documentation organized? Are there any known issues that need resolution?

60 Days Before: The Preparation Phase

Complete all reconciliations: Every account should be reconciled to supporting documentation:

• Bank accounts to statements
• Investments to custodian reports
• Accounts receivable to subledgers
• Fixed assets to detailed schedules
• Accounts payable to vendor statements
• Payroll liabilities to quarterly filings

Organize supporting documentation: Create an organized system (digital is preferred) for:

• Grant agreements and amendments
• Major contracts and leases
• Board meeting minutes and resolutions
• Significant correspondence with donors or funders
• Insurance policies
• Investment statements

Prepare the audit request list: Most auditors provide a Prepared by Client (PBC) list. Get this early and start gathering items. The typical list includes 50-100 items for a standard non-profit audit.

30 Days Before: The Pre-Audit Phase

Draft your financial statements: Prepare complete financial statement drafts including:

• Statement of Financial Position (balance sheet)
• Statement of Activities
• Statement of Functional Expenses
• Statement of Cash Flows
• Notes to Financial Statements

The auditors will adjust these, but providing a starting point shows preparation and reduces audit hours.

Prepare key schedules:

• Revenue by source with supporting documentation
• Expense allocation methodology
• Net asset continuity (beginning + activity = ending)
• Restricted fund activity
• Related party transaction summary

Brief your team: Everyone who will interact with auditors should understand:

• What the auditors will ask for
• Where documentation is located
• Who can approve information release
• How to respond to auditor questions (factually, completely, but not volunteering unrelated information)

The Audit Documentation Checklist

Having these items organized and ready prevents the back-and-forth that extends audits and increases fees:

Governance Documents

• [ ] Articles of incorporation
• [ ] Bylaws (current version)
• [ ] Board meeting minutes (all meetings for the year)
• [ ] Committee meeting minutes (finance, audit committees)
• [ ] Conflict of interest policy and signed disclosures
• [ ] List of board members with terms and affiliations

Financial Records

• [ ] General ledger (digital export preferred)
• [ ] Trial balance (year-end, adjusted)
• [ ] All bank statements and reconciliations
• [ ] Investment statements (all periods)
• [ ] Accounts receivable aging and detail
• [ ] Accounts payable listing at year-end
• [ ] Fixed asset register with additions/deletions

Revenue Support

• [ ] Grant agreements and budgets
• [ ] Grant revenue recognition schedule
• [ ] Major donor correspondence
• [ ] Contribution receipt copies (sample)
• [ ] Special event reconciliations
• [ ] Fee-for-service contracts

Expense Support

• [ ] Expense allocation methodology
• [ ] Supporting invoices (sample will be selected)
• [ ] Credit card statements and support
• [ ] Payroll registers and tax filings
• [ ] Employee benefit plan documents
• [ ] Professional service contracts

Compliance

• [ ] Prior year Form 990 and state filings
• [ ] Charitable registration documentation
• [ ] Insurance certificates
• [ ] Attorney letter (engagement letter for legal confirmation)
• [ ] Related party transaction documentation

Special Considerations: The Single Audit

If your organization spent $750,000 or more in federal funds, you'll need a Single Audit (formerly OMB A-133). This adds significant complexity:

Additional requirements include:

• Schedule of Expenditures of Federal Awards (SEFA)
• Compliance testing on major programs
• Internal control testing over federal programs
• Data collection form submission

To prepare:

• Maintain federal grant files separately with all required documentation
• Track federal expenditures by CFDA number
• Document compliance with specific grant requirements
• Ensure time-and-effort documentation for grant-funded staff

Single Audits typically add 50-100% to audit costs and timeline. Budget accordingly.

Managing the Audit Relationship

Establish a single point of contact: Designate one person (usually the controller or CFO) as the primary auditor liaison. This prevents conflicting information and ensures consistent communication.

Respond promptly: When auditors request additional documentation, provide it within 24-48 hours. Delays extend the audit and signal disorganization.

Ask questions: If you don't understand why something is being requested, ask. Understanding the purpose helps you provide the right information.

Document conversations: Keep notes on discussions with auditors, especially regarding accounting treatment decisions or potential adjustments.

Review before signing: Before your board signs the management representation letter, ensure you understand every representation being made.

Red Flags That Extend Audits (and Fees)

Auditors bill by the hour. These issues consistently increase audit hours:

Unreconciled accounts: If auditors have to reconcile your bank accounts, they're doing bookkeeping on audit rates.

Missing documentation: Every missing receipt or unsigned contract requires additional procedures to verify the transaction.

Unusual transactions: Large, one-time, or complex transactions require more audit work. Document these thoroughly.

Changes in accounting personnel: New staff or turnover means auditors can't rely on institutional knowledge.

Prior period adjustments: Errors in opening balances must be traced back and corrected before current year testing can proceed.

Last-minute surprises: Discovering unrecorded liabilities or transactions during fieldwork derails audit planning.

After the Audit: Continuous Improvement

The best audit preparation starts the day after your current audit ends.

Debrief with your team: What went well? What documentation was hard to find? What questions came up repeatedly?

Implement auditor recommendations: Don't wait until next year to address management letter comments. Create an action plan and track progress.

Update your PBC binder: As you acquire new grants, sign new contracts, or make policy changes, update your documentation files in real time.

Maintain audit-ready books: If your books are always audit-ready, year-end preparation becomes a review rather than a reconstruction.

The Payoff: Clean Opinions and Lower Fees

Organizations with strong audit preparation consistently experience:

• 30-40% lower audit fees than similar organizations with poor preparation
• Faster turnaround (4-6 weeks vs. 3-4 months)
• Fewer adjustments (clean opinions without restatements)
• Stronger funder confidence (funders review audited financials)
• Reduced staff stress (no all-nighters before fieldwork)

That health services organization we mentioned at the start? Three years after the "cardboard box" audit, they've completely transformed. Their most recent audit took three weeks from fieldwork to final report. The auditor's only comment was about a minor disclosure enhancement.

Audit preparation isn't glamorous work. But it's work that pays dividends in time, money, and organizational credibility.

Need help preparing for your next audit? Our team provides audit preparation services, interim CFO support, and ongoing accounting that keeps your books audit-ready year-round. Schedule a consultation to discuss your needs.

This guide provides general information about non-profit audit preparation. Specific audit requirements vary based on organizational size, funding sources, and state regulations. Consult with your auditor and CPA for guidance tailored to your situation.