A nonprofit finance checklist for audit and tax season

Audit and tax season doesn’t usually fail because teams don’t know what’s required. It fails when gaps surface too late to fix without disruption.

By the time auditors or tax preparers start asking questions, finance teams are often forced into reconstruction mode, retracing approvals and validating classifications. What should be routine verification turns into time-consuming cleanup under deadline pressure.

For nonprofit finance teams, that pressure compounds quickly. Audit preparation, Form 990 reporting and grant compliance all converge in the same window. Small inconsistencies that might be manageable in isolation can ripple across deliverables.

Why audit and tax season is complex for nonprofits

Audit and tax season compresses multiple reporting demands into a short window for nonprofit finance teams. Financial audits, Form 990 preparation and grant compliance reviews often run in parallel, each with distinct rules for classification and support.

Nonprofit spending adds another layer of complexity. Expenses must be tracked by program, fund or grant, often across distributed teams, volunteers and field staff. As that data rolls up, consistency matters. Small differences in how expenses are coded or documented can create issues when it’s time to generate reports.

When those demands collide under fixed deadlines, finance teams are validating accuracy across audits, tax filings and donor reporting at the same time. The checklist below focuses on the specific verification gaps that surface most often during nonprofit audits and tax reviews.

A nonprofit audit and tax season checklist

This nonprofit audit preparation checklist is built for pre-audit verification, not education. It outlines the specific items finance teams should confirm before audit and tax season begins,  while there’s still time to resolve issues systematically and without urgency. 

1. Confirm all expenses have complete documentation

What to check
Every expense has a receipt or equivalent backup attached. Documentation should be easy to retrieve without searching through email threads or personal files.

Why it matters
Incomplete or missing documentation slows reviews and increases follow-up questions, particularly for grant- or restricted-fund transactions.

Where this breaks down
Documentation is often scattered across systems or submitted late. Receipts may be missing, unclear or detached from the original transaction, forcing finance teams to reconstruct context months after the spend occurred.

2. Validate GL coding and grant attribution are consistent

What to check
Expenses are coded consistently to the correct general ledger accounts, programs and grants. Similar transactions should be categorized the same way, with no reliance on catch-all accounts that obscure how funds were used.

Why it matters
Audits, tax filings and grant reporting all depend on accurate classification. Inconsistent coding makes it harder to validate totals, reconcile reports and explain how expenses align to funding restrictions.

Where this breaks down
Expenses may be classified differently for the same type of spend, or default accounts are used when details are unclear. Those inconsistencies force finance teams to rework entries and reconstruct context long after the spend occurred.

3. Ensure expense policy is consistent across teams

What to check
Spending limits, merchant restrictions and purchase timeframes are applied consistently across programs and grants. Transactions tied to restricted funds follow documented approval workflows, and exceptions are visible and explainable.

Why it matters
Reviewers look for evidence that financial controls operate consistently across funding sources and reporting categories. Inconsistent enforcement can raise questions during audit review or grant compliance checks, even when individual expenses appear reasonable.

Where this breaks down
Policies may exist on paper but are applied unevenly. Approvals happen outside formal workflows or limits are bypassed without clear documentation. Those gaps surface during review, when finance teams are asked why similar expenses tied to different programs or grants were treated differently.

4. Verify transactions are traceable end to end

What to check
For each transaction, finance teams can follow the sequence of events from initiation through final posting. The transaction record should show how the expense was reviewed and where it was recorded.

Why it matters
External reviews test individual transactions. Reviewers need to understand how a transaction moved through approval and reporting in the context of program or funding requirements. When traceability is unclear, finance teams spend time reconstructing transaction history instead of reviewing it efficiently.

Where this breaks down
Even when documentation, coding and approvals exist, they may not be connected at the transaction level. Information lives in different places or applies only at a summary level. Those gaps become more visible when transactions tied to specific programs or grants are selected for review.

5. Review reimbursement workflows for gaps

What to check
Reimbursements follow the same review, coding and approval standards as other expenses. Requests are submitted, reviewed and recorded before payment is issued, and reimbursements tied to programs or grants are clearly attributed in reporting.

Why it matters
For nonprofits, reimbursements are used by field staff, volunteers or program teams. Auditors and tax reviewers look closely at these transactions because review happens after the expense has already occurred. When reimbursement workflows are inconsistent, finance teams are left explaining decisions instead of validating compliance.

Where this breaks down
Payments are issued before review is complete, coding happens after the fact or supporting context is split across emails and forms. Those gaps surface during review, when finance teams are asked to explain how reimbursed expenses were evaluated and recorded compared to other spend.

6. Prepare 990-ready reports and supporting data

What to check
Expense reports aggregate transaction data into Form 990 categories without manual reclassification. Program, administrative and fundraising totals can be generated directly, with supporting schedules that tie back to underlying transactions.

Why it matters
Form 990 preparation depends on clean aggregation, not transaction cleanup. Ready-to-use reporting reduces delays, limits follow-up questions and keeps tax preparation focused on review instead of reconciliation.

Where this breaks down
Expense data may be coded correctly at the transaction level but not mapped cleanly for 990 reporting. Reports are built outside the general ledger or rely on spreadsheets maintained separately. Those gaps surface when finance teams are finalizing filings and explaining variances.

How PEX helps nonprofits check every box

• Capture complete expense activity in one place
  PEX records transaction details for card-based spending and reimbursements in the same system. Receipts, approvals, coding and context stay connected, giving finance teams a complete view of nonprofit spend without pulling information from multiple tools.
• Collect and retain supporting documentation
  Staff can submit receipts and expense details through channels like text, email or mobile app. Documentation stays attached to the transaction itself, reducing missing records and eliminating follow-up during audit or tax review.
• Apply consistent coding and grant attribution
  The platform supports pre-programmed GL code mapping based on merchant name. When coding is missing or unclear, AI-based suggestions help finance teams classify expenses consistently.
• Enforce spend controls and approval workflows
  PEX applies spend controls based on merchant type, location, cardholder and more. Approval workflows support multiple levels of review. Controls and approvals are applied uniformly and exceptions are visible.
• Support audit-ready and 990-ready reporting
  PEX integrates with 50+ accounting systems, including nonprofit-specific platforms like Aplos and Blackbaud. This helps expense data flow cleanly into the general ledger.

Checklist area	What to confirm before audit and tax season
1. Complete expense documentation	Every transaction has accessible, attached documentation. No missing receipts. No reconstruction required at audit time.
2. Consistent GL coding and grant attribution	Expenses are coded accurately and consistently across programs and grants. No reliance on default or catch-all accounts.
3. Consistent enforcement of expense policy	Spending limits, restrictions and approvals operate consistently across funding sources. Exceptions are documented and explainable.
4. End-to-end transaction traceability	Each transaction can be traced from initiation to final posting with approvals, coding and documentation connected.
5. Controlled reimbursement workflows	Reimbursements follow the same review and coding standards as other expenses. No post-payment cleanup required.
6. 990-ready reporting and aggregation	Expense data rolls up directly into Form 990 categories with no spreadsheet reclassification or manual reconciliation.

Verify first, fix less later

Audit and tax season shouldn’t be a process of rebuilding history. For nonprofit finance teams, the difference between a smooth review and a stressful one often comes down to whether key checks happen early, before questions start and timelines tighten. When verification replaces reconstruction, audits and tax prep become more predictable.

Book a demo to see how PEX helps nonprofit finance teams support audit and tax season verification from everyday spend to final reporting.