If your nonprofit is heading into an audit, there are a handful of warning signs that almost always lead to delays, higher fees, and unnecessary stress.

The good news?
Most audit problems aren’t caused by bad intentions or financial mismanagement. They’re caused by preventable gaps in systems, documentation, and oversight.

In this post, I’m walking you through the five most common red flags that slow audits down—and what they signal about your organization’s financial structure.

If you missed last week’s post on what a nonprofit audit is, when one is required, and how to decide whether to pursue one voluntarily, you’ll want to read that first. This post assumes you already know an audit is coming and want to navigate it with clarity and confidence.

Red Flag #1: No Clear Ownership of the Month-End Close

When no one clearly owns the month-end close, everything related to the audit becomes reactive.

Auditors rely heavily on monthly financial discipline. If closing the books is informal, inconsistent, or shared loosely across multiple people, audit preparation becomes chaotic very quickly.

Clear ownership matters. Someone must be responsible not just for recording transactions, but for reviewing the numbers and understanding the story they tell.

Red Flag #2: Late or Inconsistent Financial Reporting

If financial reports are delayed—or only produced occasionally—auditors lose confidence in the reliability of the underlying systems.

That lack of consistency almost always leads to:

• More questions
• More testing
• More time spent in the audit

Even when the numbers are ultimately correct, late reporting signals risk to an auditor.

Red Flag #3: Weak or Scattered Documentation

Auditors need clear, accessible support for balances, estimates, approvals, and restrictions.

When documentation lives across email threads, personal folders, or institutional memory, the audit slows down fast.

Strong documentation isn’t about perfection—it’s about repeatability and clarity. Auditors should be able to follow decisions without chasing people for explanations.

Red Flag #4: Unclear Tracking of Restricted Funds

Restricted funds are one of the most common audit trouble spots.

If restricted and unrestricted activity isn’t clearly separated and consistently reported, auditors must dig deeper to verify compliance. That extra scrutiny often extends the audit timeline and increases cost.

This is also one of the easiest red flags to prevent with the right accounting structure and reporting discipline.

Red Flag #5: Limited Board Visibility and Documentation

Auditors don’t just look at numbers—they look at governance.

If boards are not consistently reviewing financial reports, approving key decisions, or documenting oversight in meeting minutes, it raises questions. And that can happen even when the financials themselves are solid.

Strong governance documentation signals accountability and reduces audit friction.

What These Red Flags Really Mean

None of these red flags mean your nonprofit is failing.

They are not people problems.
They are systems problems.

And systems can be fixed.

Audit readiness isn’t built in the weeks before an audit begins. It’s built month by month through:

• Timely financial reporting
• Clear documentation
• Consistent board oversight

When those systems are in place, audits become far less stressful—and often far more valuable.

What to Read Next

If you want to strengthen the systems that make audits smoother, here are two posts that work hand-in-hand with this one:

• The 2 Reports You Should See and Understand at Every Board Meeting
  This post explains the financial reports that create visibility, accountability, and confidence at the board level.
• Board Meeting With No Financials? Do This NOW!
  If you’re not receiving those reports consistently or on time, this follow-up walks through exactly how to address it.

Audits don’t have to feel intimidating.
With the right systems in place, they can actually confirm that you’re stewarding resources well—and leading with confidence.