October 28, 2025

For many nonprofits, the word ‘audit’ may evoke a certain amount of anxiety. But it doesn’t have to. A financial audit isn’t meant to trip you up; rather, it is an opportunity to demonstrate your organization’s financial health, enhance transparency, and reassure your donors that everything is running smoothly. 
 

Preparing ahead of time is crucial to ensuring a smooth and efficient audit process, ultimately leading to a clean audit result. This means understanding the purpose of your audit, selecting a qualified audit firm, organizing and updating your records, and gathering the necessary documents well in advance. Thoughtful preparation not only reduces stress but also saves time and money while minimizing disruptions to your team. 

Why Nonprofits Need to Conduct an Audit

 There are certain situations wherein the need to conduct a financial audit arises, such as: 

  1. If the nonprofit has received a significant amount of federal funds: Nonprofits expending at least $1,000,000 for fiscal years beginning on or after October 1, 2024 or more in federal awards during a fiscal year are required to undergo a financial audit. The threshold was $750,000 for fiscal years starting before October 1, 2024.
  2. If the state laws require it: Nonprofits must conduct an independent audit based on the amount of state funding received, total revenue for a fiscal year, or total contributions received. 
  3. If the nonprofit takes out a loan: Some banks require the nonprofit to conduct an audit to demonstrate its financial stability and ability to repay the loan before the bank approves its loan application. 
  4. If funders or grantmakers request one: The funder or grantmaker may request an audit as part of a grant application to provide confidence that you’ll use the resulting funds responsibly and for its intended purpose.
  5. If the nonprofit has a covenant: A nonprofit may have to conduct a financial audit to demonstrate compliance with a covenant (a formal agreement that the nonprofit must adhere to receive funds to maintain financial integrity). 
  6. If it is written into the nonprofit’s bylaws: A nonprofit must conduct recurring audits if it was written in its bylaws at the time of its establishment. Conducting regular audits helps promote financial security and transparency. 

Even if an audit is not required, it’s beneficial to have an audit because: 

  1. Credibility and Transparency
    An independent financial audit enhances a nonprofit’s credibility by providing assurance that its financial statements are fairly presented. This transparency builds trust among donors, grantors, and the public, demonstrating the organization’s commitment to accountability and sound financial stewardship. A clean audit opinion strengthens the nonprofit’s reputation and reinforces confidence in how it manages resources.
  2.  Improved Internal Controls
    During an audit, the auditors understand the nonprofit’s internal controls over financial reporting and operations, for them to design the audit procedures. Their findings often highlight areas where processes can be improved, which helps management strengthen internal systems and reduce the risk of errors, inefficiencies, or fraud. The resulting recommendations can lead to more effective and reliable financial management. 
  3. Enhanced Board and Management Oversight
    An audit provides the board of directors and management with an independent, objective assessment of the organization’s financial position. This enables leadership to fulfill its fiduciary responsibilities with confidence and to make informed strategic and operational decisions. Regular audits also help the board ensure that resources are being used appropriately to advance the nonprofit’s mission.

Steps to Prepare Before the Audit

Step #1: Update and Organize Financial Records 

To prepare for the audit, the nonprofit must ensure that its accounting records are complete, accurate, and up to date. The list of documents includes, but is not limited to: 

Organizational records: 

  • Organization’s Article of Incorporation, Bylaws, IRS determination letters 
  • Organization Chart 
  • Meeting minutes for the governing board and committees 
  • Employee handbooks 
  • Accounting and Finance policies and procedures 
  • Federal Grant management policy and procedures 
  • Investment policy 

Accounting records: 

  • Complete year-end closing including proper accruals, expense allocations 
  • Bank statements and reconciliations 
  • Payroll and benefits records 
  • Grant documents including all amendments; income and expenditures 
  • Invoices, receipts, and contracts 
  • Lease agreements and schedules 
  • Fixed asset listings 
  • The list goes on – be prepared for schedules of all significant accounts  

Step #2: Prepare Documents in Advance  

As stated above, the nonprofit’s accounting records should be up-to-date, accurate, and organized. The auditors may request documentation of any financial transaction made during the fiscal year. To avoid a last-minute scramble, consider: 

  • Placing all the documents in a single electronic folder.  
  • Organizing records by category, such as income, payroll, grants, expenses, and more. 
  • Ensuring backup copies are readily available in case auditors request them. 

The nonprofit can also request the audit firm to provide a requested item list that outlines what the auditors will review. Ask the auditors to specify the format they prefer to receive the requested documentation in, such as electronic files or PDFs. Doing so will help reduce the auditors’ time, save costs, and streamline the process. 

Audit Ready? Strengthen Trust Through Transparency

A financial audit doesn’t have to be overwhelming. With thoughtful preparation and the right partner, it can become an opportunity to showcase your nonprofit’s accountability, financial health, and dedication to its mission.

At Rubino, our experienced audit professionals work alongside your team from start to finish, helping you organize financial records, strengthen internal controls, and anticipate auditor requests before they arise.

Rubino’s experienced audit professionals can guide your team every step of the way, so you’re ready, confident, and audit-strong. Click here to connect with us today!

Step #3: Hold a Pre-Audit Meeting  

A pre-audit meeting should be held between the audit oversight group (and the staff who will be working with the auditors) and the auditors. This would help: 

  • Develop a timeline for fieldwork begin date, document submission, and deliverable submission 
  • Clarify the documents that the auditors will ask to review. 
  • Assign responsibilities to staff to assist auditors during their field work. 

What Happens During the Audit

During this stage, auditors will review records, test transactions, and verify compliance. This entire exercise is a part of their fieldwork. The staff assigned to the auditors must: 

  • Submit the requested documentation promptly. 
  • Answer any questions about financial transactions or internal processes. 
  • Explain organizational policies and procedures as needed. 

What to Do After the Audit

Once fieldwork is complete, the auditors draw up a report that includes: 

  • Their qualified, adverse, or unqualified opinions on the nonprofit’s financial statements. 
  • Their findings on the nonprofit’s internal controls or compliance issues that they may have come across. 
  • Their recommendations for improving the nonprofit’s financial management processes.  

The nonprofit should carefully review the report, address any identified issues, and implement the recommended improvements. They should also bring their stakeholders into the loop to maintain transparency and trust. 

Turning Audits into Opportunities

A nonprofit audit, at its core, is more than just a regulatory requirement. It’s a learning opportunity to evaluate and improve your nonprofit’s financial practices. By staying organized, preparing in advance, and working closely with auditors, your nonprofit can achieve clean results while reinforcing long-term financial health and transparency. 

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