The auditor or reviewer is going to ask for specific documents and reconciled numbers. The real work happens in the months before fieldwork, not during. Nonprofits that scramble in the final weeks usually end up with management letter comments, missed deadlines, and higher audit fees because the auditor is doing reconstruction work that should have been done by staff.

Reconcile every account through year end. Bank accounts, credit cards, investment accounts, payroll liabilities, lines of credit. Each reconciliation needs to tie to the general ledger with the supporting statement attached. Outstanding items more than 30 or 60 days old need an explanation. If your bookkeeper can’t explain a reconciling item, the auditor will ask about it and bill for the time.

Supporting documents need to be organized and accessible. For every significant expense, the auditor may want the invoice, proof of payment, and evidence of approval. Random receipts pulled from a drawer don’t qualify. Build a folder structure by month or vendor that someone unfamiliar with your books could navigate. Digital storage in Google Drive, Dropbox, or QuickBooks attachments works fine as long as the system is consistent.

Grant files are where many nonprofits lose the most points. Each grant should have its own file containing the award letter or agreement, the budget, the reporting requirements, copies of submitted reports, and a running schedule of expenses charged to the grant. Restricted grants need to show how funds were used and that they covered allowable activities. If you can’t show this clearly, the auditor will spend hours reconstructing it.

Pull together all board minutes from the audit period. Auditors look for documentation of major decisions such as budget approval, executive compensation, related party transactions, conflict of interest acknowledgments, and investment policy changes. Minutes should be signed by the secretary and approved at the following meeting. Missing or unsigned minutes raise questions about governance that lead to more testing.

Restricted funds need a clean rollforward. Beginning balance, additions during the year by donor or grantor, releases from restriction with documentation showing the purpose was satisfied, and ending balance. The auditor will trace specific donations back to gift letters or pledge agreements showing the restriction existed. Without that source documentation, the auditor can’t conclude the restriction was real.

Payroll records include quarterly 941 filings, annual W-2s and W-3s, state unemployment filings, retirement plan filings if applicable, and 1099s for contractors. Time records matter especially when staff time is allocated across grants or programs. The auditor will sample employees and trace wages from timesheets to payroll registers to bank disbursements.

Internal controls don’t have to be elaborate but they need to be documented and actually followed. Who approves invoices, who signs checks, who reconciles the bank account, who reviews the reconciliation. Segregation of duties is harder in small organizations, so compensating controls like board treasurer review of monthly financials become important. Write the policies down and stick to them.

Complete the schedules the auditor will request before fieldwork starts. Fixed asset schedule with additions, disposals, and depreciation. Accounts receivable aging. Pledges receivable with collection probability. Accrued liabilities. Prepaid expenses. In-kind contributions with valuation methodology. Functional expense allocation showing how costs split between program, management, and fundraising.

The organizations that handle audits smoothly treat audit prep as a year-round discipline rather than an event. Monthly reconciliations, organized grant files, and current board minutes mean the year-end push is a review of work already done. If your books aren’t at that point yet, getting help from a firm that handles small business accounting, bookkeeping and tax services in Jacksonville, NC can close the gap before the auditor shows up.