The word “audit” makes most church leaders tense up, usually because it sounds like something went wrong. In most cases, nothing did. Churches get audited or reviewed because a lender requires it, a denomination or governing body asks for it, the board wants independent assurance, or a grant or major donor expects it. And a church whose books are organized going in tends to have a smooth, short, uneventful audit.
This checklist walks through what to get in order, and when.
First, Know Which Type of Review You’re Actually Facing
“Audit” gets used loosely. Three different levels of outside financial review exist, and they involve very different amounts of work:
Level | What It Involves | Typical Reason |
Audit | The most rigorous level; an independent CPA tests records, controls, and balances, and issues an opinion on the financial statements | Lender or denomination requirement, large grants, board or donor expectation |
Review | Lighter than an audit; a CPA performs analytical procedures and inquiries but doesn’t test as deeply, and provides limited assurance | Smaller churches, or where an audit isn’t required but outside assurance is wanted |
Compilation | The CPA assembles financial statements from your records without providing assurance | Basic statement preparation |
Confirm with whoever is requesting the work (a lender, governing body, or your board) exactly which level is required. Preparing for an Financial Audit when only a review is needed wastes effort, and the reverse creates real problems.
The Foundation: What an Auditor Will Look For
Whatever level applies, auditors are essentially asking the same questions:
- Are the financial statements accurate and supported by documentation?
- Are restricted gifts tracked and spent according to donor intent?
- Are there adequate internal controls over cash, spending, and payroll?
- Are payroll taxes and required filings current?
- Is the church’s governance documented and followed?
Everything on the checklist below is aimed at making those answers easy to demonstrate.
3 to 6 Months Before: Get the Foundation Solid
☐ Reconcile every bank, credit card, and loan account through the most recent month-end. Unreconciled accounts are the single most common source of audit delays. If reconciliations have fallen behind, tackle that first. Our post on what happens during a church bookkeeping cleanup explains the process if your books need real catch-up work.
☐ Confirm restricted and unrestricted funds are cleanly separated. Auditors pay close attention to whether designated gifts were tracked and spent as the donor intended. If this distinction is blurry in your books, fix it now. Our guide to restricted vs. unrestricted funds covers how this should be tracked.
☐ Review your chart of accounts for duplicates and miscategorized transactions. Clean categorization makes financial statements accurate and makes an auditor’s testing faster.
☐ Verify payroll tax deposits and filings are current and reconciled to your payroll records. Late or mismatched payroll tax filings draw scrutiny quickly. See our guide to church payroll taxes for what should be withheld and filed.
☐ Run through your own list of warning signs. Our post on church financial red flags is a useful self-check before an outside party does the same exercise.
1 to 3 Months Before: Gather and Organize Documentation
Auditors work from source documents, and requests typically come in a long list. Getting these organized ahead of time cuts the process significantly.
- Bank and credit card statements for the full period under review
- Payroll records, including payroll registers, quarterly filings, and annual forms
- Contracts and agreements, including leases, loans, vendor contracts, and employment agreements
- Board and committee meeting minutes, especially where financial decisions, budgets, or major purchases were approved
- Approved budgets for the period, plus budget-to-actual reports
- Documentation supporting major or unusual transactions
- Donor records and giving statements, including documentation for large or restricted gifts
- Fixed asset records for property, equipment, and vehicles
- Debt documentation, including loan agreements and amortization schedules
- Insurance policies and evidence of current coverage
- Prior year financial statements and any previous audit or review reports, including management letters
If you’ve received recommendations from a previous audit or review, make sure you’ve documented how each was addressed. Repeat findings tend to be treated more seriously than new ones.
1 to 4 Weeks Before: Final Preparation
Appoint one point person for the auditor. A single, organized contact avoids duplicated requests and conflicting answers.
Prepare a written summary of your key financial processes, such as how offerings are counted and deposited, how expenses are approved, and how payroll is processed. Auditors will ask, and having it written down shows controls exist in practice rather than just in conversation.
Confirm that segregation of duties is documented. If one person handles too much of the financial process, note any compensating controls in place, such as board review of statements or bank reconciliations reviewed by someone else.
Review your financial statements one final time for accuracy, including that fund balances roll forward correctly from the prior year.
Brief the board or finance committee on timing, scope, and what to expect, so there are no surprises.
Set aside time for staff and volunteers who will need to answer questions. Audits go faster when people can respond promptly.
During the Audit: How to Make It Smooth
- Respond to requests promptly and completely. Slow responses extend timelines and fees.
- Answer honestly and directly, and say “I’ll find out” rather than guessing.
- Track every request in a shared log so nothing is missed.
- Ask for clarification if a request is unclear; it saves time on both sides.
- Don’t alter or “tidy up” records after the fact. Adjustments should be made through proper, documented entries.
After the Audit: Don’t Skip This Step
Once the report is issued, the work isn’t quite finished:
- Review the findings with the board or finance committee rather than letting the report sit in a file.
- Create a written action plan for any recommendations, with owners and deadlines.
- Share the report with the parties who requested it, such as your lender or governing body.
- Build the fixes into your regular processes so the same issues don’t recur next year.
Common Mistakes Churches Make Before an Audit
- Starting preparation a few weeks out when reconciliations and fund tracking need months of cleanup
- Not confirming which level of review is actually required
- Scrambling for documents that should have been filed as transactions occurred
- Making last-minute adjustments to records without documentation
- Ignoring prior recommendations and receiving the same finding again
When Outside Help Makes Sense
If your books aren’t audit-ready and time is short, bringing in professional bookkeeping support early is almost always faster and less expensive than trying to catch up under deadline pressure. Prospera helps churches reconcile accounts, clean up fund tracking, organize documentation, and build processes that hold up under outside review, so the audit itself is the easy part. Note that Prospera supports audit preparation; the audit or review itself must be performed by an independent CPA.
Frequently Asked Questions
Does my church need a financial audit?
Not always. Requirements usually come from a lender, denomination, governing body, grant, or board policy rather than from law, and many churches are never formally required to have one. Confirm with whoever is asking which level of review applies.
What’s the difference between an audit and a review?
An audit is the most rigorous, with an independent CPA testing records and controls and issuing an opinion. A review is less in-depth and provides limited assurance. A compilation provides no assurance at all.
How long does it take to prepare for a church audit?
If your books are current and well organized, a few weeks may be enough. If reconciliations are behind or fund tracking needs work, plan for several months.
What documents do auditors typically request from churches?
Common requests include bank statements, payroll records,board minutes, contracts and loan documents, donor records for restricted gifts, and prior year financial statements.
Can Prospera perform our church audit?
No. Audits must be performed by an independent CPA firm. Prospera helps you prepare by getting your books, documentation, and processes in order.
Want Your Books Audit-Ready Before the Auditor Arrives?
Talk with us about where your church’s records stand today and what it would take to get them ready.
