For most nonprofits with a June 30 year-end, October is when the auditors arrive — and nonprofit audit preparation decides whether fieldwork takes two weeks or two months. A well-prepared finance team hands over clean schedules on day one, answers questions in hours instead of days, and walks into the board's audit committee meeting with no surprises.
This guide gives Finance Directors, Executive Directors, and treasurers a practical, year-end audit readiness checklist: what auditors ask for, how the 2024 Uniform Guidance changes affect your Single Audit, the mistakes that turn into findings, and how to make next year's audit easier than this one.
What is nonprofit audit preparation?
Nonprofit audit preparation is the work a finance team does before and during an independent audit to close the books, reconcile every balance sheet account, assemble supporting schedules and documentation, and confirm compliance with donor and grant restrictions. Done well, it shortens fieldwork, lowers audit fees, and reduces the risk of findings or adjusting entries.
In one line: nonprofit audit preparation means getting your books, schedules, and evidence audit-ready before the auditor asks for them.
Per the National Council of Nonprofits, an audit is a CPA's independent opinion on whether your statements are fairly presented under GAAP — for nonprofits, statements built on FASB ASU 2016-14 presentation: net assets with and without donor restrictions, expenses by function and nature, and liquidity disclosures.
Does my nonprofit need an audit?
Your nonprofit needs an audit if federal Single Audit rules, your state's charitable registration law, a funder, a lender, or your own board requires one. Many organizations are covered by more than one trigger, so check all four before assuming you are exempt from an audit this year.
- Federal Single Audit: Under OMB Uniform Guidance (2 CFR 200 Subpart F), organizations that spend $1,000,000 or more in federal awards in a fiscal year beginning on or after October 1, 2024 must have a Single Audit, up from the prior $750,000 threshold, per the Federal Audit Clearinghouse.
- State law: The National Council of Nonprofits' state audit chart lists 28 states that require audits for some charities. Thresholds vary: California requires an audit at $2,000,000 or more in gross annual revenue, while New York requires one above $1,000,000 and a CPA review between $250,000 and $1,000,000.
- Funders and lenders: Foundation grant agreements, government contracts, and loan covenants often require audited statements regardless of size.
When should a nonprofit start preparing for its audit?
A nonprofit should start preparing for its audit at least 60 to 90 days before fieldwork, and ideally all year through a disciplined monthly close. The best audits are prepared continuously: reconciled accounts, documented restrictions, and tracked grant spending every month mean year-end is a final check, not a reconstruction project.
A sample timeline for a June 30 year-end:
- April–May: Confirm the engagement letter, audit dates, and the auditor's "prepared by client" (PBC) list.
- June–July: Run interim procedures: test controls, reconcile restricted funds, and clean up aged receivables and payables.
- August–September: Hard-close the year, post accruals, and finalize your Schedule of Expenditures of Federal Awards (SEFA) if you need a Single Audit.
- October–November: Fieldwork, draft statements, management letter, and audit committee review.
What documents do auditors request from nonprofits?
Auditors typically request a trial balance, bank and investment reconciliations, detailed schedules supporting every material balance sheet account, grant agreements and budgets, board minutes, payroll records, a fixed asset roll-forward, and evidence for contributions and restrictions. Single Audits add the SEFA and documentation of federal compliance requirements.
Use this audit preparation checklist to build your PBC package:
- General ledger and trial balance — final, post-close, with all year-end adjustments posted and explained.
- Cash and investments — bank and brokerage statements plus reconciliations for every account at year-end.
- Receivables — grants and pledges receivable aging, with signed award letters and any present-value discounts on multi-year pledges.
- Net asset schedule — roll-forward of net assets with donor restrictions, showing new restrictions, releases, and the documentation behind each release.
- Grant files — award agreements, approved budgets, budget modifications, and drawdown or reimbursement records by funder.
- Payroll and allocations — payroll registers, time-and-effort documentation, and the methodology for allocating salaries across programs and grants.
- Fixed assets — additions, disposals, depreciation schedule, and invoices for significant purchases.
- Payables and accruals — unpaid invoices, accrued payroll, and deferred revenue support.
- Governance — board minutes, conflict-of-interest disclosures, and key policies.
- Functional expense allocation — the basis for splitting costs among program, management and general, and fundraising.
How is a Single Audit different from a financial statement audit?
A Single Audit includes everything in a financial statement audit, plus tests of internal controls and compliance for your major federal programs. The auditor issues additional reports on compliance, and the full reporting package must be filed with the Federal Audit Clearinghouse within 30 days of the auditor's report or nine months after year-end, whichever is earlier.
That deadline comes straight from 2 CFR 200.512. For a June 30 year-end, nine months lands on March 31 — but if your auditor delivers the report in December, the 30-day clock wins. What to have ready:
- A complete, reconciled SEFA that ties to your general ledger and lists each award by Assistance Listing number, including pass-through awards.
- Evidence of compliance for allowable costs, period of performance, cash management, procurement, and subrecipient monitoring.
- Indirect cost support, whether you use a negotiated rate or the de minimis rate.
- Status of prior-year findings and your corrective action plan.
What are common nonprofit audit mistakes to avoid?
The most common nonprofit audit mistakes are unreconciled accounts, poorly documented restriction releases, unsupported cost allocations, an incomplete SEFA, and missing board approvals. Each one slows fieldwork, and several can become formal findings that funders will read in your report.
- Mistake: Reconciling only at year-end. Fix: reconcile cash, receivables, and payables every month so year-end is a confirmation, not a scramble.
- Mistake: Releasing restrictions without evidence. Fix: document the purpose or time condition met for every release and tie it to grant spending reports.
- Mistake: Allocating salaries by estimate. Fix: keep time-and-effort records that support every allocation charged to a grant.
- Mistake: Building the SEFA from memory. Fix: track federal expenditures by award throughout the year and reconcile the SEFA to the ledger before fieldwork.
- Mistake: Treating the management letter as a formality. Fix: assign an owner and a deadline to each comment and report progress to the audit committee.
How does the audit connect to Form 990 and board reporting?
Your audited financial statements are the foundation for your IRS Form 990 and the year-end numbers your board approves. The Form 990 is due on the 15th day of the fifth month after year-end — November 15 for a June 30 year-end — with an automatic six-month extension available by filing Form 8868, per the IRS.
Whether or not you extend, the audit, the 990, and the numbers in your board financial reporting should tell one consistent story.
Financial pressure raises the stakes. In the Nonprofit Finance Fund's 2025 State of the Nonprofit Sector Survey, 36% of nonprofits ended 2024 with an operating deficit — the highest in the survey's ten years of data — and 52% had three months or less of cash on hand. Auditors facing those conditions will look harder at liquidity disclosures and going-concern considerations, so clean, current numbers matter more than ever.
How can you make next year's audit easier?
The fastest way to make next year's audit easier is to stop treating it as a once-a-year event. Build audit readiness into your monthly close: reconcile every month, track grant budgets against actuals in real time, document restriction releases as they happen, and keep a living PBC folder you update all year.
- Hold a post-audit debrief and list every request that took more than a day to answer.
- Run monthly budget vs actual variance analysis so unusual balances are explained before the auditor asks.
- Keep grant files complete using the same discipline you apply to nonprofit grant reporting — award, budget, modifications, and spending in one place.
- Move off spreadsheets for restricted funds and grants; version control is an audit risk. See our comparison of grant management software vs spreadsheets.
How Pebble Impact helps with nonprofit audit preparation
Pebble Impact connects to your accounting system and keeps grant budgets, restricted funds, and program spending reconciled in real time, so the schedules auditors ask for already exist when the PBC list arrives. Post-award grant management tracks each award's budget, modifications, and spend-down by funder, which makes building and reconciling a SEFA a matter of review rather than reconstruction.
Because budget vs actual, restriction tracking, and compliance checks run continuously, your team catches unsupported charges and unusual balances during the year instead of during fieldwork. Reporting Studio then turns the same data into board, funder, and audit committee reports that tie to the ledger. See how it works in grant performance tracking and automated financial reporting.
Frequently Asked Questions
What is the difference between an audit, a review, and a compilation?
An audit is the highest level of assurance: the CPA tests transactions and controls and issues an opinion on your financial statements. A review provides limited assurance through inquiry and analytical procedures. A compilation provides no assurance; the CPA simply presents your data in financial statement form. Funders and state laws often specify which level you need.
How much does a nonprofit audit cost?
Audit fees vary widely with your organization's size, complexity, number of grants, and whether a Single Audit is required. The best lever you control is preparation: complete, reconciled schedules reduce auditor hours, follow-up requests, and adjusting entries. Ask your auditor which requests drove extra time last year and fix those first.
What is a PBC list?
A PBC, or "prepared by client," list is the auditor's checklist of schedules, reconciliations, and documents your team must provide before or during fieldwork. It usually covers the trial balance, account reconciliations, grant files, net asset roll-forwards, payroll records, and governance documents. Starting from last year's PBC list is the fastest way to begin preparation.
What is a management letter?
A management letter is a communication from your auditor describing internal control deficiencies, operational weaknesses, or improvement opportunities observed during the audit. It is separate from the audit opinion. Boards and funders often ask to see it, so each comment should have an owner, a corrective action, and a deadline reported to the audit committee.
Who should be involved in the nonprofit audit process?
The Finance Director or controller leads day-to-day preparation, supported by accounting staff and program managers who hold grant documentation. The Executive Director signs the management representation letter. The audit or finance committee oversees the engagement, meets with the auditor, and recommends the final statements to the full board for approval.
What happens if a nonprofit misses its Single Audit deadline?
Missing the Single Audit deadline can lead federal agencies or pass-through entities to delay payments, impose additional award conditions, or treat the organization as higher risk. If a delay is unavoidable, communicate early with your cognizant or oversight agency and pass-through funders.
Ready to make audit season the easiest part of your year? See how Pebble Impact keeps your grants, restricted funds, and reports audit-ready all year — request a demo.
