(And Simple Ways to Avoid Them)
Many nonprofit leaders worry that an audit is about “finding something wrong.” In reality, most audit issues come from limited staff, limited time, and unclear processes—not wrongdoing.
Below are the 10 most common issues auditors see in nonprofit organizations, along with simple steps you can take to stay ahead of them.
1.) One Person Is Doing Too Much
What this means:
The same person collects money, records it, and reconciles the bank account.
Why this can be a problem:
Even trusted employees can make mistakes. When one person does everything, there’s no safety net to catch errors.
Simple fix:
- Have someone else (management or a board member) review bank statements
- Review monthly financial reports
- If staffing is limited, use reviews and approvals as backup controls
2.) Financial Statements Are Prepared Only by the Auditor
What this means:
Management relies on the audit firm to “put the numbers together” into financial statements.
Why this can be a problem:
Auditors must confirm that management understands and takes responsibility for the financial information.
Simple fix:
- Make sure someone internally can review and understand the financial statements
- Use an outside bookkeeper or consultant (separate from the auditor) if needed
- Ask questions — understanding matters more than doing everything yourself
3.) Missing or Incomplete Paperwork
What this means:
Receipts, approvals, or explanations for transactions are missing or hard to locate.
Why this can be a problem:
If it isn’t documented, auditors can’t confirm it happened correctly.
Simple fix:
- Save backups as you go — don’t wait for audit time
- Use shared folders or accounting systems to store support
- Keep written explanations for unusual transactions
4.) Grant and Donation Revenue Is Recorded Incorrectly
What this means:
Money is recorded too soon, too late, or in the wrong category.
Why this can be a problem:
Some funds can’t be used freely and must follow donor or grant rules.
Simple fix:
- Keep grant agreements and donor letters on file
- Track restricted funds separately
- Ask questions when terms aren’t clear
5.) Weak Controls Over Payroll
What this means:
Hours, pay rates, or bonuses are changed without documented approval.
Why this can be a problem:
Payroll is usually the biggest expense and a common source of errors.
Simple fix:
- Require written approval for pay changes
- Review payroll reports each period
- Reconcile payroll totals to accounting records monthly
6.) Problems With Government or Grant Compliance
What this means:
Costs are charged to grants incorrectly or required reports are late.
Why this can be a problem:
Grantors may require repayment or restrict future funding.
Simple fix:
- Track grant expenses separately
- Assign one person to oversee compliance
- Review grant requirements before spending
7.) Lack of Clear Board Oversight
What this means:
Key decisions aren’t clearly approved or documented by the board.
Why this can be a problem:
Auditors need evidence the board is involved and providing oversight.
Simple fix:
- Keep clean, complete meeting minutes
- Document approvals (budgets, compensation, contracts)
- Provide the board with financial information regularly
8.) No Formal Review of Financial Stability
What this means:
Cash flow issues exist, but there’s no documented plan to address them.
Why this can be a problem:
Organizations must show they’ve thought through future financial risks.
Simple fix:
- Prepare simple cash forecasts
- Discuss funding plans at the board level
- Document any steps being taken to improve stability
9.) Estimates Are Made Without Support
What this means:
Numbers like allowances, accruals, or expense splits are “best guesses.”
Why this can be a problem:
Auditors need to see how amounts were decided.
Simple fix:
- Write down how estimates are calculated
- Use consistent methods year to year
- Review assumptions annually
10.) Late Filings and Rushed Audits
What this means:
Forms, audits, or reports are completed at the last minute.
Why this can be a problem:
Delays raise red flags and increase stress for everyone involved.
Simple fix:
- Set deadlines well before due dates
- Prepare audit schedules in advance
- Address open items early
The Bottom Line
Most audit issues are preventable and not signs of poor management. They usually come from being stretched thin or not knowing what auditors look for.
Strong communication, simple documentation, and basic reviews make a big difference—and help audits run smoother and faster.
If you’re unsure whether your organization is ready, addressing issues before audit season is almost always easier than fixing them after.
