How to Keep NGO Accounts Through the Year to Be Ready for Any Audit

09.09.2026Grants and NGOs

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.

Short answer

How to keep NGO books through the year so you are ready for any audit

Monthly: every cost booked with project and budget line analytics, a full set of documents for each, advance reports closed, timesheets signed, taxes paid, bank reconciled, project folder updated. Quarterly: reconcile restricted funding balances to budgets and tranches, budget-versus-actual by line, exchange differences, administrative costs allocated by the approved method, interim donor report built from the ledger. Annually: stocktaking in December, year-end close in January, statements in February, audit in March, corrections and publication of the annual report in April. About 15 days a year in total, against two or three weeks of panic before an audit.

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.

How much time it really takes

The most common objection from accountants is that there is no time for this. Practice shows the opposite. The monthly block takes roughly one working day for an organisation with three or four projects, because most of the steps are done alongside ordinary document posting. The quarterly reconciliation takes another half day. In total that is about 15 days a year.

The alternative is two or three weeks of rush work before an audit, when the accountant reconstructs documents for past periods and the director explains to the donor why the report is late. Some documents can no longer be recovered at that point, and they turn into findings in the audit report and sometimes into amounts the donor asks to have refunded.

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.

Accounting in an NGO: what to read

Can grant accounting be kept in spreadsheets instead of accounting software?

For a single small project it is possible, but with several grants spreadsheets stop reconciling to the ledger. During a capacity assessment donors treat the absence of an accounting system as a risk factor.

How often should targeted financing balances be reconciled?

Quarterly as a minimum, and monthly for projects with frequent tranches. An annual reconciliation almost always uncovers errors that can no longer be corrected within the period.

Is an inventory count mandatory for a Ukrainian NGO?

Yes. An annual count before the financial statements are prepared is required by accounting legislation and applies to non-profit organisations on the same basis as to others.

What if the accounts for previous years were kept poorly?

Start with a diagnostic: reconcile targeted financing balances, rebuild project analytics and collect missing documents. This is often done alongside the first audit, which produces the list of issues.

Getting ready for a project audit? Register for our free webinars for NGOs: audit preparation and the policies donors require.