How to Keep NGO Accounts Through the Year and Pass Any Audit Without Findings

Most of the findings auditors record in reports on non-profit organisations arise not from difficult accounting questions but from documents assembled after the fact. Source documents were not requested in time, a cost was not tagged to a project, timesheets were signed for a whole year at once, no inventory count was made. Each of these takes a few minutes at the moment of the transaction and several days a year later.

Below is a yearly routine that keeps an organisation ready for a review at any moment: an annual statement audit, a grant audit, a donor spot check or a capacity assessment.

Monthly routine

• every cost posted with project and budget line analytics, with no “we will sort it out later”;
• source documents collected for the month: contract, invoice, acceptance act or delivery note, payment;
• advances settled with expense reports and unused amounts returned;
• timesheets completed and signed by staff and the manager;
• payroll calculated, taxes and the social contribution paid, allocation between projects computed;
• bank statements imported and reconciled to ledger balances;
• the project file updated with the month’s documents.

The key monthly rule: a cost is not posted without a document, and a document does not sit unrecorded. If a document is delayed, the system carries a flag with the expected date rather than an empty space.

Quarterly routine

• reconcile targeted financing balances for each project to budgets and tranches actually received;
• compare actual against budget by line and record variances requiring donor approval;
• recalculate exchange differences on foreign currency accounts and balances;
• check that administrative costs were allocated using the approved methodology;
• reconcile balances with major suppliers and partners;
• prepare the interim donor report from ledger data rather than a separate spreadsheet.

The quarterly reconciliation is the moment when a problem is still fixable: an overspend on a line, an unused balance, the wrong project in the analytics. For organisations running several grants this rhythm is what prevents a crisis at the end.

Annual routine

Period	Actions
December	Inventory count of fixed assets, stock, receivables and cash; review of contracts about to expire
January	Year-end close, reconciliation of the targeted financing account, review of open advances
February	Financial statements, the non-profit income report, reconciliation of the two
March	Annual statement audit, responding to auditor requests
April	Corrections from the management letter, policy updates, publication of the annual report

The inventory count is the item skipped most often and the one that almost always produces a finding. For NGOs it is critical because of equipment bought with grant funds: the auditor verifies its existence physically.

The project file: what it should contain

A separate file for each project, on paper or electronically, with the same structure throughout:

• the donor agreement, the budget, all annexes and written amendments;
• registration documents, if the project is registered as technical assistance;
• procurement: requests, quotations, comparisons, conflict of interest declarations, contracts;
• costs arranged by budget line rather than by date;
• personnel: contracts, orders, timesheets, allocation calculations;
• assets: receipt documents, asset cards, inventory counts, transfer acts;
• donor reports and correspondence on approvals.

When the file follows the budget structure, auditors and donors find what they need on their own, and the number of questions to the accountant drops sharply.

What the board should have approved

Documents whose absence spoils the impression even when the figures are flawless: an accounting policy, a procurement policy with thresholds, a remuneration policy, rules on travel and advances, a conflict of interest policy, an anti-corruption policy and a complaints procedure. This is exactly the set reviewed during a donor capacity assessment.

Signs that the accounts will not survive a review

• project spending is determined from bank statements at the end of a period rather than from the ledger;
• the donor report is prepared in a separate spreadsheet and never reconciled to the accounts;
• source documents are stored in different places and held by different people;
• timesheets appear only before an audit;
• nobody has checked the targeted financing balance since the project started;
• grant-funded equipment does not appear in the fixed asset register;
• the accountant has never seen the grant agreement and does not know the donor’s rules.

The last point is the most common. An accountant who has not read the agreement cannot keep the books in line with its requirements, and no amount of diligence compensates for that.

MK Audit has worked with non-profit organisations since 2000, is listed in the Ukrainian register of auditors (No. 4624) and is a member of DFK International. We audit financial statements and projects, and we also keep NGO accounts with project analytics and donor reporting, as described on our accounting for NGOs and business page. If you need to prepare the organisation for an audit or to bring grant accounting into order, send us a request: commercial proposal after reviewing the assignment, response within 1 day.