For many not-for-profit (NFP) organisations in Australia, audit season can feel daunting. While your focus is usually on delivering community impact, auditors are focused on financial accuracy, compliance, and adherence to Australian Accounting Standards (AAS).
The reality is that most audit issues are not unusual or complex. They are recurring and preventable once you understand what auditors look for. This is especially important under AAS issued by the Australian Accounting Standards Board (AASB) and reporting obligations regulated by the Australian Charities and Not-for-profits Commission (ACNC).
Here are common audit issues for NFPs and practical ways to confidently prepare your financial statements.
1. Incomplete or inconsistent bookkeeping
One of the most frequent audit findings in NFPs is incomplete or inconsistent financial records. This often happens when bookkeeping is done irregularly or across multiple systems. For NFPs, this becomes a bigger issue because income is often diverse—grants, donations, membership fees, and fundraising activities all need to be tracked properly.
The ACNC requires charities to maintain financial records that support accurate annual reporting, whether they prepare Special Purpose Financial Statements (SPFS) or General Purpose Financial Statements (GPFS) under AAS.
A strong foundation in not-for-profit bookkeeping is essential to make sure all transactions are recorded accurately and supported with documentation.
2. Misclassification of income and expenses
Another common issue is incorrectly classifying income or expenses—particularly restricted vs unrestricted funds, or capital vs operational costs.
The AASB requires clear presentation of how funds are used and recognised. AASB 15 applies where there is an enforceable contract with sufficiently specific performance obligations, with revenue recognised as those obligations are satisfied. AASB 1058 captures the residual, transactions that don’t meet the AASB 15 threshold—where income is generally recognised immediately on receipt unless a related liability arises under another standard.
Using structured not-for-profit accounting services helps ensure your chart of accounts is designed for NFP reporting, especially when dealing with grants and donor restrictions.
3. Weak grant tracking and reporting
Grant funding is a major area where audit issues arise. Many organisations struggle to demonstrate how funds were spent against specific grant conditions. Auditors expect clear tracking of restricted funding, including supporting records and reconciliation of grant balances.
The ACNC highlights that financial reports must clearly reflect how funds are used and comply with relevant AASB standards. Using project codes or cost centres for each grant improves visibility and makes reporting significantly easier. Many organisations rely on not-for-profit accounting firms to help manage grant compliance obligations.
4. Missing documentation and audit trails
Auditors need complete supporting financial records for all transactions. Missing invoices, receipts, or approvals are one of the most common reasons for audit delays. For NFPs, where volunteer activity and informal processes are common, documentation gaps can easily occur. Auditing Standards require auditors to obtain sufficient appropriate evidence.
5. Payroll and compliance errors
Payroll issues are another frequent audit finding, especially for organisations with casual staff, multiple funding arrangements, or award-based employment. Errors often include incorrect superannuation, outdated pay rates, or misclassification of workers.
Payroll obligations must comply with Australian employment law and are reviewed as part of financial reporting compliance under AASB frameworks. Engaging in outsourced accounting providers can help reduce compliance risks and improve payroll accuracy.
6. Weak internal controls
Many smaller NFPs operate with limited staff, meaning one person may handle multiple financial responsibilities. While this is understandable, it increases the risk of errors or fraud. Internal control weaknesses are a known risk factor in audit planning under AAS.
Auditors focus heavily on governance and oversight mechanisms when assessing risk. Simple controls such as dual authorisation for payments and board-level financial review can significantly strengthen governance.
7. Delays in preparing financial statements
Another common issue is late preparation of financial statements. This usually results in rushed reporting, errors, or incomplete reconciliations. Maintaining up-to-date bookkeeping throughout the year is crucial to avoid year-end pressure.
The ACNC requires annual financial reports to be lodged in line with reporting obligations, and delays can affect compliance status. A common solution is to outsource bookkeeping services for NFPs needing consistent reporting support.
Preparing for a smooth NFP audit
NFPs should take a proactive and structured approach to financial management throughout the year, not just at year-end. Strong preparation in compliance with AASB—including AASB 1058 and AASB 15—and ACNC requirements will help reduce stress and improve accuracy.
✅ Maintaining accurate and up-to-date bookkeeping records
Keep your records accurate by recording transactions in real time, along with regular reconciliations. This makes it easier for auditors to trace financial activity and identify errors early.
✅Using accounting software designed for NFP reporting
NFP-focused accounting software improves accuracy and efficiency through fund tracking, class reporting, and grant management. It also supports AAS compliance and reduces manual errors.
✅ Reconciling accounts monthly
Monthly reconciliations help identify errors early and prevent year-end backlogs. Regular checks of bank accounts, credit cards, and balance sheet items also improve financial accuracy and reporting reliability.
✅ Keeping detailed supporting documentation
All transactions should be supported by clear records such as invoices, receipts, and approvals. Maintaining proper digital storage gives you easy access during audits and supports compliance, especially for restricted funding.
✅ Regularly reviewing grant compliance requirements
Regular grant reviews support alignment between spending, funding conditions, and reporting deadlines. Proper tracking systems help maintain compliance and accurate reporting, often with support from not-for-profit accounting firms.
✅ Seeking professional guidance when needed
External support helps NFPs manage complex reporting requirements and reduce risk. Services such as outsourced accounting improve efficiency and ensure compliance with Australian standards.
Outsource Bookkeeping Services in Sydney
Audit issues in NFPs are rarely caused by major errors. They are usually the result of inconsistent processes or lack of structure. With the right systems in place, financial reporting becomes significantly easier and more transparent.
By strengthening bookkeeping, improving documentation, and aligning with Australian accounting requirements, NFPs can approach audit season with confidence rather than stress.
If your organisation needs support with financial reporting, compliance, or audit preparation, contact Keeping Company for outsourced accounting in Sydney. Discover how our team can help you with tailored not-for-profit accounting solutions.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice, and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
Ryan Miller is the founder of Keeping Company, May 2011 – Present. A tie-loathing, people person with an entrepreneurial spirit. Ryan’s drive to modernize the accounting industry coupled with his desire to help people succeed saw the birth of Keeping Company. Focusing on the SME space, KeepingCo. empowers business owners by providing high-quality end-to-end accounting and business advisory services.
Ryan took his first Accounting role working at KPMG. He went onto further refine his skills as a Chartered Accountant taking the role of Director of a Chartered Accounting firm in Erskineville.
Ryan is a fully qualified Chartered Accountant and a member of the Institute for Chartered Accountants Australia and New Zealand. He is also a Registered Tax Agent and holds a Bachelor of Commerce from the University of South Australia.