Seven tips to avoid a nonprofit accounting nightmare

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In the nonprofit sector, we are tasked with wearing multiple hats and finding ways of doing more with less. This means that we are often tapped out when it comes to capacity and our ability to do everything that comes across our desks.

But what happens when one of these tasks revolves around your nonprofit accounting?

Because of the importance of the work, accountants are brought in to make sense of our numbers, and report it effectively, accurately, and legally. And even though you may not be an accountant – here are seven tips to avoid a nonprofit accounting nightmare.

1. Keep donation records

Keeping donation records might seem pretty self-explanatory. But your organization should keep and file away all your donation records. You should also separate them by fiscal year, and ensure that you have access to them for several years afterwards.

The important thing here is to create a secure system that allows your organization to look back at records and produce these records for accountants who are helping with bookkeeping.

2. Use a CRM software

Using a CRM software will help your organization by housing all of the important information related to each donation and transaction. One of the major benefits of working within a CRM is that it centralizes all of the relationships and context into one, easily accessible place.

If your accountant has any questions about specific transactions, having a searchable CRM will enable you to find that transaction, and deliver context in a matter of seconds.

Did Jane Doe donate in March or April? Now you can find that answer without having to physically dig through your files.

3. Segment transactions by payment method

In the digital age, nonprofits are accepting donations in multiple ways. Cash donations, cheques and credit cards are the most common methods. But we’ve even started to see organizations start to accept alternative currency like crypto-currency.

Each of these payment types is treated differently by your accountant. By separating the donations by payment method, you will be able to save hours of headaches and questions when audit season rolls around.

4. Keep donations and other revenues separate

Donations are very different from the other types of revenues your organization could accept. Some examples of other revenues include membership fees, grants or sponsorships. You should treat and report each of these revenue sources in your organization differently.

By keeping a clear separation between your donations and other revenue sources, you will be able to deliver cleaner data to your accountant – which means less back and forth, and far less confusion.

You can keep your donations and other revenue sources separate within your CRM by using tags or other grouping functionalities. If your organization doesn’t use a CRM, you can also do this on a spreadsheet by using filters!

5. Use digital receipts

While most nonprofits are far removed from the days of storing receipts in a shoebox, paper receipts still pose a major problem for organizations. They can be easily misplaced and ink can fade making them hard to read.

By using tools that digitize your receipts, you can easily store all of your documents in a centralized database – the cloud. Storing your documents in the cloud provides a secure storage in the long term while allowing auditors to easily trace for source documents and reducing the time required for an audit.

Moving files to the cloud might seem intimidating, but it’s really simpler than you’d think. In most cases, it can be achieved by simply taking a photo with your phone, using applications like Receipt Bank. Receipt Bank also accurately extracts the data from your receipts and publishes them to your online accounting software, reducing the likelihood of incorrect data from human error.

6. Map out your accounts and data clearly

As a nonprofit organization that accepts public donations, you must set up your bank accounts and data in a very specific way. Here are a few things you should make clear.

  • Sales Deposit Account: This is the account where your donations will go. Make sure this is established and clear when you eventually hand everything over to your accountant. This will give clear context as to where transactions are coming from, and will enable them to match up donations to the bank deposits, and ensure it balances.
  • Expense Category: When recording expenses incurred for your organization, there are several categories (i.e. meals, entertainment, etc.) that they can fall into. These help to keep your transactions organized. Make sure each transaction clearly indicates which transaction category they belong to.
  • Expense Withdrawal Account: This is the account that your organization uses to pay for the expenses that an organization has to consider. Once again, having clarity around this point provides a way for your accounting team to understand the transactions and balance them.

These categories will help your accountant paint a clear picture of your organization’s financial overview. Not having these categories could result in a longer audit process for your organization.

7. Outsourcing Your Bookkeeping

Due to the stringent reporting requirements that nonprofits are subject to, it is important for your organization to have a robust bookkeeping process in place. However, many nonprofits lack the resources to hire a full time bookkeeper with indepth knowledge on nonprofit bookkeeping, resulting in poor record management and inaccurate financial reporting.

If your organization struggles with hiring a full-time bookkeeper, you should consider outsourcing your bookkeeping functions to a back-office solutions company like Enkel.

By outsourcing your bookkeeping to Enkel, your organization will be able to tap into their team of experienced CPAs and bookkeepers for your monthly reporting and complex accounting issues. Moreover, Enkel uses online accounting software and other cloud-based tools to help non-profits streamline their bookkeeping, payroll and payables process, saving the organization precious time and money in the long run.

Outsourced bookkeeping teams often bring modern accounting features to your organization, such as:

  • Cloud-based data storage that delivers virtual access to authorized personnel,
  • Rigorous security standards that maintain your financial accountability,
  • Automated software and apps specifically designed to boost your efficiency, and
  • Scalable processes that support your organization’s growth.

With an outsourced bookkeeping team in place, you can ensure that your organization’s financial reporting regulations are complied with and rest easy knowing your organization’s books are in good hands.

By taking advantage of these seven tips, you’ll alleviate any pressure that your finance team might face when it comes to bookkeeping. This will also set up your future accounting processes for success.

All of this means one thing: when end-of-year comes around, you’ll be able to sleep soundly and avoid the nightmares of poor nonprofit accounting.

Gracia Chua is the Marketing Lead at Enkel Backoffice Solutions, a Vancouver based accounting firm that provides managed accounting and reporting services for Canadian businesses and not-for-profit organizations. Enkel strives to provide nonprofit executives and board members with better bookkeeping and accurate financial reporting, so they can make better decisions and focus on achieving their goals.

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