There are always changes that can be implemented at your nonprofit or business that will make your operations more efficient, especially when it comes to accounting practices. It’s hard to realize your organization may be working with multiple inefficiencies since you’re “in the weeds” with day-to-day work. Unless something goes wrong, why change it? The answer is easy: updating how things are done at your nonprofit by incorporating efficiencies will help grow your mission. Here are five accounting practices we recommend you review annually for the overall health of your nonprofit.
Controlling your finances properly is key to minimizing risk, especially the risk of fraud. Accounting controls policies and procedures should include how your organization receives and deposits donations, how receipts for donations are created, and ensures all those involved in these accounting practices understand “why” these controls need to be performed.
Yet, there are always ways accounting controls can be refined and made to function more efficiently. Looking back at the year and seeing if issues arose or employees or volunteers had problems handling the controls is vital. The issues could be how the controls are setup and executed, or how things have changed, i.e., donations are now mostly coming from your website and not mailed. Develop accounting controls with your staff to incorporate their ideas, but also discuss possible accounting control changes with your accountant to make sure the plan is feasible while minimizing risk.
Financial Reporting Your Board Will Read and Understand
Not all nonprofit boards meet monthly, but nonprofit directors should send monthly financial reports to board members. This is critical for one simple reason: everyone involved in the decision-making will immediately know the organization’s financial status. If there is room for improvement they can immediately begin looking at ways to implement changes and ensure the organization becomes and remains financially sound.
Not all board members can comprehend financial statements. Sometimes, in meetings, eyes glaze over and they may never give feedback or ask questions. Creating a training on how to read financial statements is ideal, but creating a summary page attached to the financials offering detailed explanations will ensure all board members are understanding your nonprofit’s financial status and thoughtfully performing their fiduciary duties
Ideally, account reconciliation should be performed monthly, not annually. If you are concerned about the additional time this would take, review the time spent correcting errors at year-end. You might actually find greater efficiency can be gained with monthly reconciliations.
Managing a “Rainy Day” Fund
We have previously discussed the importance of managing a rainy-day fund. If your nonprofit doesn’t have emergency funds, you are ignoring the potential need to shut your doors should an unanticipated emergency arise. If you do have a rainy-day fund, it’s important to annually assess the amount and determine if the nonprofit has enough to survive something as catastrophic as, let’s say, a pandemic.
Three to six months of operating expenses is the typical amount of savings that should be in your rainy-day fund. As the organization grows, so should the funds in that account. If you have not yet created savings, begin conversations with your board members so they can help you develop a plan to grow those funds.
Updating Accounting Software
How well do you know the software you or your staff are using for accounting? More than likely, there are many unknowns about the software and no time for a more robust training program. Your employees simply know enough to get by. Even if you know the accounting system backwards and forwards, is there additional training for all staff with each software update? Are there automated procedures included in the software that you could be using?
Consider a training session and possibly even an upgrade to newer software. If your software is older than seven years, consider a newer product that will likely save you time and effort.
Our goal at Numbers 4 Nonprofits is to manage money with mission. All of the accounting practices mentioned here are offered with the services we provide for our nonprofit clients. An accountant focused on nonprofits should DEFINITELY be something to consider if you are reviewing your accounting practices.
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