What an Auditor Will Ask For

The list arrives before the auditor does

A few weeks before fieldwork, your auditor sends what the profession calls a PBC list. It stands for "prepared by client," and it is exactly what it sounds like: everything they need you to gather before they start. The first time a founder sees one it reads as an interrogation. It isn't. It is a checklist, it is broadly the same list at every school, and almost every item on it is something you either already have or can create in an afternoon. Schools that have seen it once find their second audit dramatically cheaper, because audit fees scale with how much time the auditor spends waiting for you. Here is what is on it, grouped by why they want it.

Governance and structure

• Formation documents, bylaws, and your IRS determination letter if you are a 501(c)(3)
• Board minutes for the full year, including committee minutes
• Your board-adopted budget and any amendments to it
• Conflict of interest policy and signed disclosures
• Any contracts with board members or their businesses

Why: the auditor is establishing who has authority to commit the school and whether anyone with authority also had a financial interest. Board minutes are the single most-requested item, and the one most often incomplete. Approving the budget in a meeting and never writing it in the minutes is a very common finding.

The books themselves

• Trial balance and general ledger for the year
• Bank statements and reconciliations for every month and every account
• Investment account statements
• Accounts receivable aging as of year end
• Accounts payable aging as of year end
• Fixed asset register with purchase dates, costs, and depreciation

Why: this is the raw material. The reconciliations matter more than founders expect, because an unreconciled account is the auditor's signal that nobody has been checking, and it expands the rest of their testing.

Revenue support

• Enrollment records tied to your tuition revenue
• Tuition rate schedule and your financial aid policy
• A schedule of scholarships and discounts awarded
• Grant agreements and award letters
• Donor documentation for significant gifts, including any restrictions in writing
• State funding remittance advices, if you receive public money

Why: revenue is where the auditor spends the most time, because it is where the most judgment lives. The one that catches schools out is written donor restrictions. If a donor gave $50,000 for a science lab and the only record is a conversation, the auditor cannot verify the restriction, and that creates a problem for both of you. Get restrictions in writing at the time of the gift, even if it is only an email you send confirming your understanding.

Expense and payroll support

• Payroll register and quarterly payroll tax filings
• Employment agreements for key staff
• Your policy on classifying workers as employees or contractors, plus any 1099s issued
• Vendor invoices above whatever threshold they set
• Your lease, and any loan agreements

Why: payroll is the largest number in almost every school budget, so it gets tested. Worker classification is a frequent finding: treating someone as a contractor who functions as an employee is a common and expensive mistake, and the auditor will look at it.

Policies

• Capitalization policy, meaning the dollar threshold above which a purchase becomes an asset
• Your method for allocating shared costs across program, management, and fundraising
• Cash handling and check signing procedures
• Document retention policy

Why: these are the rules you say you follow. The auditor wants them written down, because a policy that lives only in the business manager's head is not a control. Two of these are quick wins: a capitalization policy is one paragraph, and an allocation method is one paragraph plus a worksheet.

Which of these your budget already answers

If you have built a full model in SchoolStack Budget, you are further along than you think. The model already carries:

• Your enrollment plan and tuition rates, tied to revenue
• Your scholarship and discount structure, presented the way GAAP presents it
• Your staffing plan with roles and compensation
• Your lease terms and loan schedule
• Your expense structure, split by function if you are a nonprofit
• A written record of the assumptions behind each of these

What the budget does not replace is the ledger. An auditor tests what happened, and a budget is what you planned. But the budget answers the "explain your revenue model" and "walk me through your staffing" conversations quickly, and it is the document that makes your assumptions legible rather than something you reconstruct from memory.

The three things to do now

If an audit is anywhere in your next two years:

1. Fix your board minutes. Make sure every budget approval, major contract, and policy adoption is recorded. This is free and it is the most common gap.
2. Write down two policies. Your capitalization threshold and your cost allocation method. A paragraph each.
3. Get donor restrictions in writing going forward. An email confirming what a gift is for is enough.

Those three take an afternoon and remove the most common friction from a first audit. Everything else on the PBC list is either already in your accounting system or is a document you already have in a folder somewhere.