THE BELOVED CPA FIRM™
Guide for Nonprofit Leaders:
5 Things Every Nonprofit Leader Should Own About Their Finances (Before the Auditor Arrives)
A Note Before We Start
The audit is not your financial strategy. It's a checkpoint. What happens between checkpoints is entirely yours to manage — and that's where most nonprofit financial problems actually live.
I've spent 20 years in audit and financial advisory — including time at PwC, Baker Tilly CI and Deloitte — and the most useful thing I can tell any nonprofit leader is this:
An auditor's job is to express an opinion on whether your financial statements are fairly presented in accordance with GAAP, as of year-end. That is a specific, bounded task. It is not the same as having someone watching over your financial health throughout the year.
That watching-over job belongs to you — to your leadership team, your finance director, your board's finance committee. The audit is the annual moment when an independent professional looks at the results of your financial management. It is not a substitute for that management.
What follows are five things nonprofit leaders should own — actively, not passively — to ensure that when the audit arrives, it reflects an organization that was well-managed throughout the year, not one that scrambled to get ready.
These are also the things that, when they're missing, turn a routine audit into a stressful one.
A note on terminology: This guide refers to audits throughout, but most of what's here applies equally if your organization undergoes a review engagement. The financial management disciplines are the same — the difference is the level of assurance your CPA provides, and whether your funders, lenders, or board require the higher standard. If you're unsure which applies to you, that's a good starting question for your CPA.
A note on tone: This guide does not suggest that your auditor is failing you. A GAAP financial statement audit or review has a defined scope — and most CPAs perform it competently within that scope. The question this guide addresses is what you, as a nonprofit leader, should be doing alongside that process.
THING 1
Own your restricted fund tracking — don't hand it to the audit.
How grant and donor-restricted funds move throughout the year is a management responsibility. By the time the auditor arrives, that story should already be clean.
Restricted funds are one of the most common sources of financial difficulty for nonprofits — not because leaders intend to misuse them, but because tracking them in real time requires discipline that gets deprioritized when cash is tight or staff is stretched.
Your auditor will test restricted fund balances at year-end. They will check whether the closing balance is supported and whether the financial statement presentation is accurate. What they are not doing is monitoring whether restrictions were honored month by month throughout the year. That is your job.
Organizations that handle this well treat restricted funds as genuinely separate pots of money — tracked in the accounting system, reviewed regularly by the finance director, and reported to the board at least quarterly. Organizations that handle it poorly treat restricted fund accounting as an audit preparation task, reconstructing the picture in the weeks before fieldwork begins.
What strong management of restricted funds looks like:
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Restricted and unrestricted funds are coded separately in the accounting system — consistently, not just at year-end
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The finance director reviews restricted fund balances monthly and can explain any movement
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Grant agreements are on file and accessible — not just known to one person
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When a program team requests funds, someone confirms which fund they should draw from before the transaction, not after.
The audit question this prepares you for: When your auditor tests restricted net assets, they should find clean, well-documented balances that reflect what actually happened — not a reconstruction. That makes fieldwork faster, cheaper, and more useful for everyone.
THING 2
Know your compliance picture before someone else tells you.
Compliance thresholds — particularly around federal funding — can change your reporting requirements significantly. Leaders who discover this during an audit are in a harder position than those who planned for it.
If your organization receives $750,000 or more in federal financial assistance in a fiscal year — whether directly or passed through a state agency — you may be subject to a Single Audit under the Uniform Guidance (2 CFR Part 200). A Single Audit requires additional compliance testing beyond a standard financial statement audit, and it requires documentation that many nonprofits don't routinely maintain.
The challenge is that federal funds often arrive through multiple channels — direct awards, state pass-throughs, subcontracts from larger grantees — and the total accumulates without anyone specifically tracking it against the threshold. A growing organization can cross $750,000 in federal assistance in a year when no single grant would have triggered the concern.
This is not primarily your auditor's responsibility to monitor. It is yours. Your auditor will identify the requirement once the engagement begins — but by then, the year is over and the documentation either exists or it doesn't.
What to own as a leader:
• Maintain a running total of federal financial assistance received each fiscal year, across all sources
• Understand which of your grants are federal direct awards versus state pass-throughs — the distinction matters
• If you are approaching $750,000, discuss the implications with your CPA before year-end, not after
• Ask your finance director: if we were subject to a Single Audit this year, would our documentation support it?
The preparation question: Single Audit compliance testing requires program-level documentation — allowable costs, eligibility records, performance reports. If your team has never thought about this, the gap is easier to close before year-end than during fieldwork.
Case study: Christian Mission NFP
For All Major Home Appliances
Service provided: Audit
The organization takes the gospel where it has never been taken before. It works with indigenous church planters including showing the Jesus film.
How we helped:
The entity needed an audit done to attract additional donors as it's work has expanded. There was difficulty in tracking restricted vs. unrestricted funds as some donors don't stipulate requirements. They use funraise donor platform to receive donations.
THING 3
Build internal controls that don't depend on trusting everyone.
A control environment that works because everyone is honest is not a control environment. It's good fortune.
Internal controls are the policies and procedures that ensure financial transactions are authorized, recorded accurately, and reviewed independently. They matter not because your team is untrustworthy — it's almost certain they aren't — but because controls protect your team as much as they protect the organization.
The most common control weakness in small nonprofits is concentration: one person who handles receipts, makes deposits, reconciles the bank account, and processes payroll. When that person is competent and honest, everything works. When they leave, get sick, or make an error, no one finds out until the auditor arrives.
Your auditor will communicate material weaknesses and significant deficiencies in writing, as required by auditing standards. But there are observations below that threshold — fragilities that a good auditor notices and may mention informally — that never make it into a required finding. The strongest organizations don't wait for those findings. They assess their own control environment deliberately.
Questions worth asking your finance committee:
• Is any single person handling a complete financial transaction from authorization through recording and reconciliation?
• What would happen to our financial operations if our finance director were unavailable for four weeks?
• When did we last review who has access to our accounting system — and whether all those people still need that access?
• Do we have written financial policies, or does the organization run on institutional knowledge?
A practical starting point: Ask your auditor, at the close of your next engagement, whether there are informal observations about your control environment that didn't rise to the level of a required finding. A good CPA will answer that honestly. What they tell you is more valuable than the formal report.
Case study: Animal rescue NFP
For All Major Home Appliances
Service provided: Review, Audit, State filing
The organization is dedicated to rescuing animals (labradors) and placing them in foster care homes.
How we helped:
We first undertook a review, to assist them in getting audit ready and helping them ensure their controls were adequate and thereafter for the next year undertook an audit and state filing (FL).
THING 4
Understand your own financial systems well enough to explain them.
If you can't describe how your financial data moves from transaction to financial statement, you are more dependent on your systems than you realize — and less in control than your board thinks.
Most nonprofits today run on a combination of cloud accounting software, online giving platforms, donor management systems, and grant reporting tools. Each system generates data. That data flows — sometimes automatically, sometimes manually — into the financial records that become your financial statements.
The question is whether your leadership team understands that flow well enough to spot a problem. Not at a technical level — but at the level of: if our online giving platform reported $180,000 in donations last quarter and our accounting system shows $172,000, does anyone know why, and does anyone check?
Financial statement auditors will consider whether your systems are reliable enough to place reliance on the data they generate. But the day-to-day oversight of whether those systems are working correctly belongs to management. An auditor who arrives and discovers that no one has ever reconciled the giving platform to the general ledger has a harder job — and a less efficient engagement.
What leadership should be able to answer:
• Which systems touch our financial data, and how does information flow between them?
• Who is responsible for reconciling each system to the general ledger — and how often does that happen?
• When did we last review who has login access to our accounting system and giving platform?
• If a system generated an error in a financial report, would we catch it — and how?
One useful exercise: Ask your finance director to walk you through how a single donation — received online — becomes a line in your financial statements. If they can't trace the full path, or if the path involves manual steps that no one consistently performs, that's a conversation worth having before the audit begins.
Case study: Alabama empowerment NFP
For All Major Home Appliances
Service provided: Audit and Form 990
Mission of organization: This regional empowerment entity is on a mission to equip and empower students and their families for success.
How we helped:
They had last had an audit 3 years prior to our involvement. There was work involved in ensuring opening balances were suitable for the audit.
As part of the audit, we assessed whether their internal controls and corporate governance met IRS corporate governance requirements and best practices.
THING 5
Get audit-ready before the audit starts — not after the engagement letter is signed.
The organizations that get the most value from an audit are the ones that arrive prepared. The audit then becomes a confirmation, not a discovery process.
There is a meaningful difference between organizations that manage their audit and organizations the audit manages. It shows up in cost, in timing, in the quality of the auditor's observations, and in what the leadership team actually learns from the process.
When an organization arrives at fieldwork with clean, reconciled accounts, documented policies, accessible grant files, and a finance team that can answer questions without reconstructing records, the auditor can spend their time on substantive testing and useful observations. When an organization arrives unprepared, the auditor spends their time chasing documentation — and the engagement becomes expensive, stressful, and less informative than it should be.
Audit readiness is not a function of budget or size. It is a function of discipline — monthly reconciliations, consistent coding, documented policies, and a finance director who treats year-end preparation as a rolling process rather than a sprint.
A self-assessment for your leadership team:
☐ We can produce a clean trial balance within 30 days of year-end
☐ Bank accounts are reconciled monthly — and someone other than the bookkeeper reviews them
☐ Restricted and unrestricted funds are tracked separately in our accounting system, consistently
☐ Grant agreements and donor restriction letters are on file and accessible
☐ We have written policies covering how cash is received, how expenses are approved, and who can authorize payments
☐ We understand which systems generate our financial reports and who is responsible for each
☐ Access to our accounting system is reviewed at least annually
If you answered no or not sure to three or more of these, the conversation worth having is not with your auditor — it's with your finance director and board treasurer, before the next engagement begins.
That conversation is also exactly what Jedidiah CPA's advisory work is designed to support — not just the annual audit, but the financial management discipline that makes the audit useful.
A Final, Honest Note
A good audit relationship is one where the auditor and management are working from the same direction — the auditor testing what management has prepared, and management confident in what they've prepared.
Most audit firms perform competent GAAP audits. What varies is whether the relationship extends beyond the technical engagement — whether your CPA is someone you can call with a question that isn't about the audit, and whether they'll tell you something useful when they notice it, even if they're not required to.
That's the kind of relationship Jedidiah CPA is built around. Not just the annual opinion — but the ongoing conversation about what your financials mean and what to do about it.
If you read this and realized some of these things aren't as settled as you'd like — or if you're choosing an audit firm for the first time and want to understand what a genuinely useful engagement looks like — a 20-minute call is the right next step.
No pitch. If Jedidiah CPA isn't the right fit, I'll tell you honestly — and I'll try to point you toward someone who is.
Dickson E. Wasake, CPA (US) | FCCA (UK)
Managing Partner, Jedidiah CPA PLLC
20 years | PwC · Deloitte · Baker Tilly · Jedidiah CPA
Serving nonprofits, foundations, faith-based organizations, and mission-driven entities across the United States.
jedidiahcpa.com | +1 (224) 212-0004 | 2250 Point Blvd, Elgin, IL
This article is provided for informational purposes only and does not constitute accounting, legal, or financial advice. The appropriate level of financial reporting for your organization depends on your specific circumstances, funding sources, and regulatory requirements. Jedidiah CPA PLLC is a licensed CPA firm in Illinois.