By Melissa Lagowski
Founder/CEO/Queen Bee
Successful financial management is one of the greatest keys to the sustainability of your nonprofit or association. The accuracy of your numbers is crucial for day-to-day funding of staffing, programming and strategic planning. And yet, depending on the source, 40% of nonprofit leaders and 60% of small business owners say they are not good at bookkeeping.
Accounting is a highly-regulated area of importance for your organization, and yet most nonprofits do not invest in securing the specialists needed to manage their finances. And even when an association does hire a bookkeeper, leadership might not know how to properly manage a bookkeeper, so the organization can still land in some hot water.
Over the past six months, we have seen a handful of nonprofits that do have a bookkeeper, but they still didn’t have access to current financial reports, proper financial packets or a budget for their organization. We even had one client who reported that the IRS showed up on their doorstep when their CPA hadn’t properly filed a tax return on time, thus jeopardizing their nonprofit status.
Securing a bookkeeper is a wonderful way to utilize a financial specialist to keep your organization compliant with federal and state guidelines, but leadership still has to effectively manage the bookkeeper to be a good fiduciary agent for your association. So what do you need to know to protect your organization?
Here are some key considerations:
1. Clear and Segregated Role and Responsibilities
Define the bookkeeper’s role clearly, including their responsibilities and boundaries. This can help prevent overlap with other roles and ensure that tasks are managed efficiently. Also make it clear that no single person has control over all aspects of financial transactions. Ideally, separate responsibilities for authorizing transactions, recording them and reconciling accounts exist.
We recommend that a staff person, a treasurer and a bookkeeper oversee monthly reporting, and a Certified Public Accountant (CPA) will then review the financial records annually for completion of the annual tax return. This system provides better checks and balances for your organization on a regular basis.
2. Qualifications and Skills
Ensure the bookkeeper has the necessary qualifications and experience, particularly with nonprofit accounting standards. Take time to review their qualifications before contracting with them.
3. Training and Development:
Provide key leadership members with training related to nonprofit accounting practices and relevant regulations. Invest the time to learn more about financial reports and how to leverage the data they provide if you do not feel comfortable reading and understanding the information. You don’t have to know enough to do all of the work, but board members and senior staff should be able to assess the data in the reports and ask relevant questions to protect your nonprofit.
4. Oversight and Review
Leadership should receive monthly reporting packages that include a balance sheet (summary of an organization’s assets and liabilities), a profit and loss statement (also known as a P&L or an income statement), and a budget-to-actual report for the year to date.
Other critical reports include a regular review of the accounts payable (AP) report and the accounts receivable (AR) report. It is important to review what your organization owes (the AP) and what is currently due (the AR) so that you can evaluate and properly collect the funds due and pay what is owed. Ultimately, you want to keep AR under 30 days past due.
Senior staff and executive board members should implement monthly reviews of the financial records. Even if the bookkeeper is trustworthy, regular oversight helps catch any errors or discrepancies early.
5. Compliance and Reporting
Ensure that your bookkeeper understands and adheres to nonprofit financial reporting standards and compliance requirements, including IRS regulations and any donor restrictions. You should also know what the city, county, state and federal requirements are for your particular type of nonprofit so that you can also monitor that all deadlines are met to protect your 501(c) status.
To learn about the warning signs to look for that indicate it’s time to hire a new bookkeeper, read “These Red Flags Scream That You Need a New Bookkeeper.”
