Nonprofit Audit Guide

    Nonprofit Audit Preparation Checklist — DC, Maryland & Virginia

    What documents does a nonprofit need to prepare for an audit?

    A nonprofit audit requires: 12 months of reconciled bank statements, complete general ledger, all grant agreements and expenditure reports, board meeting minutes for the full year, trial balance, fixed asset schedule with depreciation detail, restricted and unrestricted net asset reconciliation, payroll records (W-2s, 941s), and prior-year audited financial statements. Most organizations need 60–90 days to compile these properly.

    When Does Your Nonprofit Need an Audit?

    When Does Your Organization Need an Audit or Review?

    FeatureStateReview RequiredFull Audit RequiredDeadline
    Washington DCNone by statuteNone by statute (grants/funders may require)DLCP license renewal
    Maryland (from July 1, 2026)$400K–$999,999 contributions$1M+ contributions6 months after FYE
    VirginiaNone by statuteNone by statute (Form 990 accepted)4.5 months after FYE
    Federal (all states)$1M+ federal awards (Single Audit)9 months after FYE

    The 10-Step Audit Preparation Checklist

    Step 1: Bank Reconciliations (All Accounts)

    Reconcile all bank, investment, and credit card accounts through the fiscal year-end date. Auditors will not proceed without current reconciliations. Include: operating accounts, reserve accounts, restricted grant accounts, payroll accounts.

    Step 2: General Ledger & Chart of Accounts

    Ensure your general ledger is complete for the full year. Review the chart of accounts for any miscategorized transactions. Auditors will request a full trial balance and general ledger.

    Step 3: Grant Documentation

    For each active grant: compile the grant agreement (with all amendments), budget, expenditure report, draw requests, correspondence with the funder, and any compliance reports. Organize by grant.

    Step 4: Board Meeting Minutes

    Compile board meeting minutes for all meetings during the fiscal year. Minutes should document: quorum, votes on key resolutions, approval of budget and financial statements, officer elections, and any related-party transactions.

    Step 5: Fixed Asset Schedule

    Prepare a schedule listing all fixed assets (equipment, furniture, leasehold improvements, vehicles) with: acquisition date, cost, accumulated depreciation, current book value, and funding source (grant-purchased assets require special treatment).

    Step 6: Restricted Net Asset Schedule

    Reconcile beginning balances, current-year additions (new grants, donor restrictions), current-year releases (expenses against restricted funds), and ending balances for each donor-restricted fund. This is a common area of audit complexity.

    Step 7: Payroll Records

    Prepare: payroll registers for the full year, W-2 forms for all employees, 941 quarterly returns, state unemployment tax filings, and time and effort documentation for grant-funded employees.

    Step 8: Accounts Payable & Accrued Liabilities

    List all outstanding vendor invoices and accrued expenses as of fiscal year-end. Auditors will test completeness of year-end liabilities by reviewing subsequent disbursements.

    Step 9: Revenue Schedules

    Prepare schedules of contribution revenue (with donor names and dates for gifts over $5,000), program service revenue by program, government grant revenue by grant, and investment income.

    Step 10: Prior-Year Audit Report & Management Letter

    Gather the prior-year audited financial statements and auditor's management letter. Prepare a status update on each prior-year finding or management letter comment showing what corrective action was taken.

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    5 Common Audit Preparation Mistakes

    Starting preparation the week auditors arrive

    Auditors typically provide a PBC (Prepared by Client) list 30 days before fieldwork. Organizations that wait until fieldwork begins face delays, additional audit hours, and higher costs.

    Bank reconciliations with 'timing differences' that are months old

    Old uncleared items in bank reconciliations signal potential errors. Auditors will investigate any reconciling items over 90 days old.

    Missing board minutes for key transactions

    If the board approved a significant expenditure, contract, or related-party transaction without documented minutes, auditors will flag it.

    Grant expenditures in the wrong cost center

    Expenses charged to grants that don't match the grant budget categories or that exceed budget line items create findings. Review all grant expenditures before year-end.

    Not reading the prior-year management letter

    Auditors always start by reviewing prior-year findings and management letter comments. Coming to the audit without documented responses to prior-year items creates an immediate credibility gap.

    Related Resources

    Nonprofit Audit ServicesAudit Readiness AssessmentSingle Audit (2 CFR 200)Audit Requirement Checker

    Frequently Asked Questions

    It depends on the condition of your books. Organizations with current, well-maintained books need much less preparation than those with reconciliation backlogs or disorganized grant files. Starting at least 90 days before your expected fieldwork date is recommended for most organizations.

    PBC stands for 'Prepared by Client.' It's the list of schedules, documents, and analyses that your auditor requests before and during fieldwork. Common items include trial balance, bank reconciliations, grant schedules, fixed asset schedule, board minutes, and loan agreements. Completing the PBC list promptly is the single biggest driver of audit efficiency.

    If key documents are unavailable at the start of fieldwork, auditors will either delay fieldwork (and charge for rescheduling) or continue with available materials while issuing 'open items' that extend the engagement. Both outcomes increase cost.

    Most auditors prepare the financial statements as part of the audit engagement — but you should provide a complete, reconciled trial balance, and schedules supporting all significant balance sheet and income statement accounts.

    The management representation letter is a letter from your executive director and CFO/treasurer to the auditor confirming key representations — that financial statements are prepared in accordance with GAAP, that all transactions have been disclosed, that there are no undisclosed subsequent events, etc. It's signed at the conclusion of the audit.

    A Single Audit requires all of the above plus: a Schedule of Expenditures of Federal Awards (SEFA), time and effort documentation for grant-funded staff, procurement documentation (competitive bids), and compliance documentation for each major federal program. The SEFA is typically the biggest additional preparation item.

    If your organization is preparing for its first audit and lacks internal financial expertise, engaging a part-time CFO or controller (or a virtual CFO service) 3–6 months before the audit significantly reduces preparation burden and audit costs.

    At minimum: bank and investment reconciliations for every account, a grants and contracts schedule (awarded, received, spent and receivable), a net assets with donor restrictions roll-forward by restriction, a fixed asset roll-forward with depreciation, accrued payroll and leave balances, a vendor list with W-9s, prior-year adjustments posted, and board minutes for the year and through the report date.

    Auditors must communicate significant deficiencies and material weaknesses in internal control in writing to those charged with governance (AU-C 265). A management letter is an optional, less formal letter with other recommendations. Both go to the board and management; if a Single Audit applies, reportable control findings also appear in the public reporting package.

    Slow responses to auditor requests during fieldwork, unreconciled balance sheet accounts, and missing grant or restriction documentation. Naming one or two people as audit contacts, delivering the PBC list complete and on time, and posting year-end adjustments before fieldwork are the most effective ways to keep the engagement on schedule.

    It depends on how quickly open items are resolved. The auditor completes review, sends draft financial statements and any proposed adjustments for management's review, obtains the signed representation letter, and then issues the report. First-year audits, open items and Single Audits take longer, so build a buffer before any funder or filing deadline.

    It depends on the size of the organization, the number of funding sources and the condition of the records. Your finance team should expect to spend time during fieldwork answering auditor questions and pulling documentation. Good preparation reduces that time.

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