The Nonprofit's Guide to Bookkeeping Cleanup Before Audit Season 2026

Audit season is coming. You can feel it in the air: like a storm on the horizon. For nonprofit leaders, few things trigger anxiety quite like the words "the auditors will be here next month."

Here's the thing: audits don't have to be painful. The organizations that breeze through audit season aren't lucky: they're prepared. And preparation starts with one critical task: bookkeeping cleanup.

Whether you're a small community nonprofit or a larger organization managing multiple grants, this guide will walk you through exactly what you need to do to get your books audit-ready for 2026. No jargon. No panic. Just a clear path forward.

Why Audit Season Feels Different for Nonprofits

Let's be honest: nonprofit accounting is a different beast. You're not just tracking revenue and expenses. You're managing restricted funds , tracking grant compliance , documenting in-kind donations , and proving to donors that every dollar went exactly where it was supposed to go.

Unlike for-profit businesses, nonprofits operate under intense scrutiny. Your board, your donors, your grantors, and the IRS all want to see clean, transparent financial records. An audit isn't just a regulatory checkbox: it's a trust-building exercise.

That's why nonprofit bookkeeping requires a specialized approach. Generic accounting practices won't cut it. You need systems designed for fund accounting, donor restrictions, and the unique compliance requirements that come with tax-exempt status.

The Real Cost of "We'll Fix It Later"

We've heard it a hundred times: "We'll clean up the books before the audit." But here's what actually happens when you wait until the last minute:

• Scrambling for documentation that should have been filed months ago
• Discovering discrepancies that are nearly impossible to explain
• Paying premium rates for emergency accounting help
• Exhausted staff working nights and weekends
• Audit findings that damage your credibility with funders

The truth is, bookkeeping cleanup should happen throughout the year: not in a panicked two-week sprint. Organizations that implement monthly closing procedures spend a fraction of the time (and stress) preparing for audits compared to those who let things pile up.

Your Step-by-Step Bookkeeping Cleanup Checklist

Ready to get your nonprofit audit-ready? Here's your roadmap:

1. Reconcile Every Account

This is non-negotiable. Every bank account, credit card, investment account, and petty cash fund needs to be reconciled. Address discrepancies now: it's infinitely easier to fix issues proactively than to explain them to auditors.

Pro tip: If you find transactions you can't identify, document your research process. Auditors appreciate seeing that you investigated, even if you couldn't find a perfect answer.

2. Review Your Restricted Funds

This is where many nonprofits stumble. For every restricted gift or grant, you need to clearly show:

• The original restriction or purpose
• How much has been spent (and on what)
• The remaining balance
• Whether any restrictions have been released

Create a grants schedule that tracks what was received, what was spent, and what remains. Your auditors will request this, guaranteed.

3. Verify Your Fixed Asset List

Do you know where all your equipment is? Can you prove you still own that van from 2019? Your fixed asset schedule should show all purchases, disposals, depreciation, and current values. If something was sold or discarded, make sure it's properly removed from your books.

4. Clean Up Accounts Receivable and Payable

Review your aging reports. Are there pledges or invoices that are unlikely to be collected? Write them off properly. Are there old outstanding checks that were never cashed? Research and resolve them. Clean AR and AP schedules make auditors very happy.

5. Confirm Payroll Records Match

Your payroll records should reconcile perfectly with your general ledger. This includes wages, benefits, payroll taxes, and retirement contributions. Any variance will raise red flags.

6. Organize Your Documentation

Gather supporting documentation for significant transactions. This includes contracts, grant agreements, board minutes approving major decisions, and receipts for large purchases. If an auditor asks "why did you record this?" you should be able to answer with a document, not a memory.

2025 cleanup note (happening now in early 2026): if you reimburse employee/volunteer mileage, confirm your reimbursement calculations and GL coding use the 2025 standard mileage rate of 70 cents per mile when reconciling 2025 activity (not the 2026 rate).

Internal Controls: Your Audit Shield

Auditors don't just look at your numbers: they evaluate your processes. Strong internal controls demonstrate that your organization takes financial accountability seriously.

Here are the basics every nonprofit should have in place:

• Separation of duties: The person who writes checks shouldn't be the same person who reconciles the bank account
• Approval workflows: Large expenses should require multiple approvals
• Secure access: Financial systems should have password protection and limited access
• Regular reviews: Someone should be reviewing financial reports monthly, not just at year-end
• Documented procedures: Write down how things are done, so processes don't live only in one person's head

If your internal controls are weak, now is the time to strengthen them. Auditors will note deficiencies, and repeated findings can damage your reputation with funders.

The PBC List: What Auditors Actually Want

Your auditors will send you a Prepared-by-Client (PBC) list: a checklist of everything they need from you. Getting ahead of this list saves everyone time and reduces your audit fees.

2025 cleanup note (happening now in early 2026): if you expended significant federal funds, confirm whether a Single Audit is required. For fiscal years ending on or after September 30, 2025, the Single Audit threshold increased to $1,000,000 (up from $750,000).

Here's what's typically requested:

• Bank and investment statements (all months)
• Detailed general ledger and trial balance
• Accounts receivable and payable aging reports
• Fixed asset schedules
• Grant agreements and compliance documentation
• Board meeting minutes
• Payroll registers and tax filings (W-2s, 1099s)
• Form 990 from the prior year
• Fiscal policies and procedures manual
• List of board members and key staff compensation

1099 reporting threshold note: for the 2025 tax year (filing now in early 2026), the reporting threshold is still $600. The $2,000 threshold applies only to 2026 calendar-year payments (filed in early 2027) for Form 1099-NEC and Form 1099-MISC. Make sure W-9s (or W-8s where applicable) are on file before payments go out.

Ask your audit firm for their PBC list early. Then organize everything in a single electronic folder before they arrive. Auditors bill by the hour: the more organized you are, the less you pay.

Fund Accounting: The Nonprofit Difference

If your organization is still using basic accounting software designed for for-profit businesses, you're making life harder than it needs to be.

Fund accounting is the gold standard for nonprofit financial management. It separates revenues and expenses by net asset class: net assets with donor restrictions and net assets without donor restrictions: so you can easily demonstrate compliance with donor intent and grant requirements.

This isn't just about satisfying auditors. It's about building trust with the people who fund your mission. When a donor gives money for a specific program, they want to know it went there. Fund accounting proves it.

2026 note on digital assets (cryptocurrency): if your nonprofit holds crypto, make sure you can support the fair value of those holdings at reporting dates (including how fair value was determined and documented) consistent with the updated FASB guidance effective in 2026.

2026 note for nonprofits under group exemptions: if your organization is included under a group exemption, confirm the central organization’s process aligns with Revenue Procedure 2026-8 (including updated documentation, oversight, and annual compliance procedures for subordinate organizations).

At High Point Accounting & Advisory, we specialize in helping nonprofits implement proper fund accounting systems that make compliance effortless and reporting crystal clear.

When to Call in Reinforcements

Let's be real: most nonprofit leaders didn't get into this work because they love spreadsheets. You're passionate about your mission, not your chart of accounts.

If any of the following sound familiar, it might be time to bring in professional nonprofit accounting services:

• Your books are months behind
• You're not sure if your restricted funds are tracked correctly
• Staff turnover has left gaps in your financial knowledge
• You've had audit findings in previous years
• You're spending more time on bookkeeping than on your actual mission

There's no shame in asking for help. In fact, it's one of the smartest investments a nonprofit can make. Clean books don't just satisfy auditors: they give you the financial clarity to make better decisions for your organization.

The High Point Approach

At High Point Accounting & Advisory, we understand that nonprofits aren't just "small businesses with a 501(c)(3)." Your financial needs are unique, and you deserve a partner who gets that.

We offer personalized bookkeeping services designed specifically for nonprofits: keeping your books up-to-date, compliant, and audit-ready all year long. No more last-minute scrambles. No more audit anxiety.

Ready to tackle your bookkeeping cleanup before audit season hits? Don't wait until the auditors are knocking. Schedule a free consultation and let's get your nonprofit's finances in shape (together).