Running a nonprofit requires great diligence, as there are many rules and compliance guidelines you must adhere to for your donors and regulators. Many of these regulations are tied to your nonprofit’s finances, which is why it’s crucial to have an efficient and effective accounting team on your side from day one.
As your nonprofit’s CEO or executive director, can you confirm you have a high-functioning and compliant accounting department? This feat requires more than following best practices; it’s a continual commitment that takes the right expertise and resources to achieve.
Let’s explore some of the necessary steps for establishing and maintaining a high-functioning accounting department.
Document Essential Policies and Procedures
Following the accounting regulations established by the IRS and generally accepted accounting principles (GAAP) are part of the day-to-day requirements of a nonprofit’s accounting team. Juggling these requirements isn’t easy, but a well-developed policy and procedure guide can help.
Below are several best practices to keep in mind when documenting your policies and procedures. Consider which items on the list are currently being handled by your accounting department as well as potential gaps that could leave you open to risk.
- Accurately document that all funds received were used for charitable purposes.
- Maintain good backups of electronic files and documents in secure, safe storage.
- Make the conversion from one board treasurer to another as easy as possible through training and assistance.
- Stay current with nonprofit accounting regulations by reading industry news and attending webinars to stay informed.
- Have a well-thought-out and organized operational budget. Create this year’s budget with the future in mind.
- Accounting software is key for streamlining processes and delivering results — make sure yours is helping your team do their job, not hindering them.
- Reconcile accounting schedules on a regular basis.
Starting with these basic but important items can help your accounting department move in the right direction. Are you already doing all list items above? If not, it’s time to develop a plan.
Get Your Reporting on Track
Nonprofits have the distinct responsibility of diligently addressing their donors’ questions and needs. They must confirm all donation dollars received are going toward the programs, as promised to the donors. In order to meet and exceed donor expectations, the reporting capabilities of your accounting team must be up to date, and all donations and expenditures must be recorded properly. Here are six steps your accounting team should follow to get your reporting on track:
- Enter all transactions and financial data as soon as possible. When the transaction is current, everyone remembers the intent of the donor, the reason for the transaction and the program the transaction was intended to support.
- Reconcile your nonprofit’s bank account monthly — no excuses.
- Reconcile your accounting donor schedules monthly. Follow up on all discrepancies, and adjust them accordingly.
- Generate reports monthly for operations, departments and programs.
- Review the reports to check for accuracy. Any errors, omissions or reclassifications should be adjusted immediately.
- Back up your reports and store them in a secure, safe place at least every other day (if not daily).
- File your required tax reports and tax deposits on time.
In addition to these steps, make sure your board treasurer and other financial professionals have line of sight to your reporting and accounting functions. Their input is helpful, and having an extra set of eyes to catch potential mistakes is never a bad thing. Having the right team of professionals around you is key to serving your organization’s mission to the best of your ability.
Hold Your Team to a High Standard
Guidelines are put in place for a reason. They hold others accountable and make the workplace efficient and safe. Ensuring your team is complaint and following accounting procedures is a core part of your organization’s overall success. There are a multitude of reasons why you should prioritize your accounting team’s standards, but the following are a select few:
- You’re accountable for reporting to the IRS and your state. The numbers and data in the reports created by your accounting department are what you’ll submit, so make sure they’re accurate and honest.
- Internal controls are critical for managing the funds coming in and out of your organization. Having proper controls helps you minimize risk and potential workplace fraud.
- Well-written policies and procedures help drive consistent and efficient work within the organization, can help employees overcome bad habits, and help support the organization in times of crisis.
- It’s critical to have a knowledgeable and capable bookkeeper as well as a finance director or CFO, whether they be a volunteer, a contractor or on staff. Annual filings to the state and Form 990 are complicated and should be prepared by someone competent to avoid costly errors.
The bottom line here is that donors and regulators expect you to effectively run your organization. By doing so, you can better provide the impactful programs your mission statement defines. Making sure your accounting department is operating properly and that your organization’s financial records are safe and accurate should be done now so that it doesn’t come back to haunt you later.
We’re Here to Help
Are you looking for assistance with managing your nonprofit’s accounting needs? Creative Planning Business Services can help. We have a team of nonprofit industry specialists who can provide you with the resources and expertise you need to help streamline your financial processes. Contact us today to learn more about our tailored nonprofit services.
