Receipt Documentation Checklist for Nonprofit Audits

Proper documentation is crucial for expense management for non-profit organizations, including record retention, donor acknowledgements, and adherence to federal and state audit thresholds. By following a thorough receipt documentation checklist, nonprofits can demonstrate accountability to donors, funders, and regulatory bodies, and maintain their tax-exempt status. For a complete overview, see our expense management guide.

Record Retention Requirements

Nonprofits must maintain accurate and detailed records to ensure compliance during audits. Record retention is a critical aspect of this process.

• Keep receipts or bills for all purchases, including those under $100, as proof of payment.
• Ensure receipts or bills are accompanied by proof of payment approval by someone other than the payer.
• Organize receipts or bills in a clear and accessible manner, such as by date, vendor, or type of expense.
• Consider using a file naming convention to help with record retrieval and storage.

Keep in mind that auditors may request specific records, so it's essential to maintain a comprehensive and well-organized record retention system.

Documentation for Donor Acknowledgement

• Include the following information in the acknowledgment letter:
• The donor's name and address
• The date and amount of the donation
• A statement indicating no goods or services were provided in exchange for the donation (if applicable)
• The organization's tax ID number
• Use fund accounting principles to track restricted versus unrestricted funds separately.
• Document donor intent for every restricted contribution, including:
• The donor's name and contact information
• The amount and purpose of the restricted contribution
• The organization's plan for using the restricted funds
• Keep accurate and detailed records of all donor acknowledgements, including the acknowledgment letter and supporting documentation.

Internal Controls and Financial Transactions

• Segregate duties to prevent fraud and protect compliance: no single person should control all aspects of any financial transaction (authorization, recording, custody).
• For California nonprofits, audited financial statements are required if gross revenue reaches $2 million or more in any fiscal year.
• For Florida nonprofits, a financial review by an independent CPA is required for contributions between $500,000 and $1 million.
• Maintain financial records for at least seven years from the related tax return's filing date.

Permanent Record Keeping and Grant Management

• Review grant agreements carefully to understand the terms and conditions of the funding.
• Track expenditures against grant conditions to ensure compliance and avoid repayment or loss of future funding.
• Keep detailed records of all grant-related documents, including:
• Grant agreements and amendments
• Expenditure reports and invoices
• Reconciliation statements and audit reports
• Organize records by grant, with clear and consistent naming conventions and storage.
• Retain grant records for a minimum of 7 years, as required by the Internal Revenue Code (IRC).
• Ensure that all grant-related financial transactions are properly authorized, documented, and accounted for.
• Conduct regular reviews of grant records to ensure accuracy, completeness, and compliance with grant conditions.