Nonprofits must manage their financial and accounting records even though they are not subject to income tax. This includes preparing financial statements, collecting payroll taxes, projecting budgets and tracking performance. If nonprofit accounting procedures are not monitored, they can become inefficient over time. Here are some suggestions for policies that your nonprofit should review on a regular basis.
Billing and Account Reconciliation
First and foremost, ensure that the person or group in charge of your organization’s financial oversight (such as your CFO, treasurer, or finance committee) promptly checks monthly bank statements and financial statements for clear errors or unexpected sums. Doing this regularly can reduce future headaches.
Developing policies and procedures for the monthly cutoff for recording vendor invoices and expenses is another excellent step toward accounting function improvement. For instance, require that the nonprofit accounting department receives all invoices no later than one week following the end of each month. Time can be wasted and your financial statements can’t be finished if there are too many adjustments or if you wait for input from staff or departments.
Reconciling your balance sheet accounts each month may also enable you to save days at the end of the year. When mistakes are caught early, they are much simpler to fix. Also, reconcile accounts payable and accounts receivable subsidiary ledgers to your statements of financial position.
Improving Efficiency
Another step toward improving efficiency is creating a coding cover sheet or stamp. How so? To enter vendor bills and donor donations into your accounting system, an accounting clerk or bookkeeper needs a variety of information. Speed up the process by collecting all of that information on the invoice or donor check copy by using a stamp. Route invoices for approval in a folder that has the general ledger account numbers for your nonprofit so the person submitting data doesn’t have to look them up.
There should also be a space on the cover sheet or stamp for the appropriate person to sign off on the invoice before it is paid. Use multiple-choice boxes to select the appropriate cost center for the amounts. Be sure to keep a record of the invoice’s payment for future reference. And before any donor gifts are entered into the accounting system, have your development team submit information about them.
Another piece of advice about bills is to avoid cutting checks or entering invoices one at a time. Set aside a block of time to do the job when you have multiple items to process.
Making Good Use of Nonprofit Accounting Software
Many businesses underuse the accounting software they have purchased because they don’t spend time learning the software’s full features. If necessary, hire a trainer to go through the fundamentals of the software with the team and share time-saving tips and shortcuts. Standardize your accounting software’s financial reports as well to ensure that they always fit your needs. This will not only decrease entry errors but also give you useful financial data at any time, not just at the end of the month.
And think about automating payroll allocations and common journal entries in your accounting program. Automating tasks like payroll allocations to different programs or vacation accrual reporting is possible with many systems. However, periodically compare any estimates to actual data and always make the necessary adjustments before year-end bookkeeping.
Keeping Your Nonprofit Accounting Current
These are only a few of the duties that fall under the category of nonprofit accounting. Your company will operate more efficiently if you handle these jobs effectively. Now is the time to get rid of labor-intensive processes that can be automated or don’t add value. If you have questions about nonprofit accounting, contact us.