For many, the spring season is a time for new beginnings. For others, including many nonprofit organizations, spring often means the fiscal year is drawing to a close.
As the calendar turns and your nonprofit prepares to close the books on another impactful year, it’s essential to pause and focus on one of the most important aspects of your operations: financial compliance. For 501(c)(3) organizations, staying compliant isn’t just about meeting regulatory requirements—it’s about protecting your mission, maintaining public trust, and ensuring that your good work continues uninterrupted into the new year.
From IRS filings to internal audits, the risk of falling out of compliance can have serious consequences—think penalties, delays in funding, or even loss of tax-exempt status. Fortunately, with a few proactive steps, you can close out the year with confidence.
Here are five must-do tips to help your nonprofit stay compliant, financially healthy, and audit-ready.
1. Review Financial Records & Reporting
Start the year-end strong with a detailed financial check-up. Before diving into next year’s plans, it’s crucial to make sure your financial records reflect the true story of your organization’s performance. Begin by reconciling your accounts—double-check your books, bank statements, and transaction logs to ensure everything lines up.
Use this opportunity to produce or review your core financial statements—your income statement, balance sheet, and cash flow statement. These aren’t just internal tools; they’re key for funders, auditors, and stakeholders who want a transparent view of your operations.
Also, don’t forget to review your grant and donation records. If you’ve received restricted funds, make sure your team has tracked their use in accordance with donor intentions and legal obligations. If you need a refresher, check out our blog series on understanding and analyzing financial statements.
2. Ensure IRS Compliance & Filings
Avoid surprises from Uncle Sam by getting ahead on your IRS obligations. Nonprofits are required to file Form 990 annually with the IRS, and failing to do so can lead to serious consequences—including automatic revocation of tax-exempt status. Confirm your filing deadlines and gather the necessary documentation well in advance.
Have any of your activities generated income outside of your core charitable mission? If so, you’ll want to assess whether it qualifies as Unrelated Business Income (UBI) and be sure that you’ve properly reported and paid any taxes due.
Another critical step: ensure proper donation documentation, especially for gifts over $250. Donors must receive accurate acknowledgment letters for their gifts to remain deductible.
3. Meet State & Local Compliance Requirements
Think beyond the federal level—state and local regulations matter, too. It’s easy to focus on federal filings and overlook local obligations, but many states have their own requirements for nonprofit organizations. Check if your state requires annual charitable registration renewals and make sure your paperwork is current.
If you raise funds across state lines, confirm that your solicitation licenses are active in each state where you’re fundraising. Fundraising without proper licensing can result in fines or public scrutiny.
And don’t forget your team: ensure all state payroll taxes and unemployment insurance filings are up to date to stay in good standing with labor departments.
4. Internal Controls & Organizational Policies
Strong policies and controls are the foundation of nonprofit accountability. Think of this step as a “health check” for your internal systems. Conduct a self-audit of your financial controls to confirm that the right checks and balances are in place to prevent fraud, waste, or mismanagement.
Next, take a look at your governance documents—are your conflict-of-interest policies still relevant? Are board member agreements and roles clearly defined? The end of the year is a great time to refresh and reinforce these foundational materials.
Also, review the compliance status of your grants. Ensure you’re meeting any reporting or spending requirements attached to grant-funded programs.
5. Budget Planning & Financial Health Assessment
Set your nonprofit up for success by planning for the year ahead. As you head into the final business quarter of your year, it’s time to look forward. Start by drafting a preliminary budget that reflects your goals, expected funding, and operational needs for the next fiscal year.
Don’t just think in terms of dollars and cents—take a big-picture view of your financial sustainability. Do you have a healthy level of reserves? Are your funding sources diversified? Is your cash flow steady and predictable?
Depending on your size and the expectations of funders or your board, consider whether an audit or financial review may help enhance credibility and uncover opportunities for improvement. An annual independent audit is a thorough review of a nonprofit’s financial statements conducted at the end of its fiscal year. This examination ensures the accuracy, reliability, and compliance of the statements with relevant laws and regulations.
In the US, nonprofit audits typically focus on adherence to Generally Accepted Accounting Principles (GAAP), the established standards for financial reporting. The audit process involves a meticulous examination of financial records and statements to identify errors, inconsistencies, or potential fraud. You can also check out our comprehensive guide to annual independent audits for nonprofits for more tips and guidelines.
Stay Ahead of Compliance
Nonprofit leaders wear many hats—and staying compliant with financial and operational rules is one of the most important (if not the most exciting). But year-end doesn’t have to be stressful. With a proactive approach and a clear checklist, you can strengthen your foundation and set your organization up for another year of impact.
We understand that navigating compliance can be daunting for nonprofit organizations. By dedicating time to review and refresh your own end of year checklist, you will help safeguard your organization’s future, enhance employee satisfaction, and drive business success.
Want to make it even easier? Download our Year-End Compliance Checklist for Nonprofits
Need help navigating the complexities of nonprofit compliance?
The Consonance Group is here to act as your trusted partner throughout the entire process. As a leading financial services firm specializing in the nonprofit sector, we go beyond simply offering bookkeeping and CFO services. We act as your primary point of contact for auditors, smoothing the path to a successful and stress-free compliance experience.
Reach out to a TCG expert for tailored support. We’re here to help you end the year strong—and start the next even stronger. Contact us today to get started with a free consultation.