Non-Profit Financial Systems - Lessons Learned and Best Practices

Non Profit - Non-Profit Financial Systems - Lessons Learned and Best Practices

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Non-Profit finance and accounting in many ways, is much more difficult than for-profit accounting. Accounting for items such as grants, restricted funds, and in-kind donations all add complexity. There are unique Gaap rules for non-profits that vary if you are a government not for profit, or a hidden nonprofit. The Irs then has its own set of rules. And foundations and major donors such as the United Way typically have their own set of rules. Retention track of all of this is a daunting task!

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Non Profit

To add to the issue, over 90% of the 1.1 million non-profits in America, have less than 10 staff. As a result, most non-profits do not have the scale to have an accounting department. Oftentimes they attempt to hire a more senior accountant, but out of necessity ask this person to also do bookkeeping. The high powered accountant gets frustrated booking receipts all day, but the non-profit naturally doesn't have the scale to also hire a bookkeeper. Or a non-profit hires a bookkeeper who is great at banging in donations all day, but is not grand to know the details and intricacies of non-profit accounting.

All this has resulted in the following: A recent study by the National town for Charitable Statistics reports that over 50% of non-profits do not properly effect Gaap. Only 16% properly effect Irs guidelines. What can a small to mid-sized non-profit do to improve? There are several options.

1) There are many training firms that supply capacity construction for non-profits. They attempt to teach all of these extra rules to the non profits. These are great, however most population who join non-profits join for the mission, not to do menagerial work. Plus, most population in non-profits are overworked and naturally have too many to-dos to stop and learn a whole new skill set.

2) Hire a freelance bookkeeper. Freelance bookkeepers are cheap. But their turnover is high. Looking a trustworthy freelance bookkeeper, skilled in non-profit accounting, can be incredibly difficult. Also, many bookkeepers wear multiple hats - such as secretary, office administrator, and / or assistant to the improvement director. All of these tasks can distract from their accounting 'chores.'

3) Volunteers. Volunteers are great for scheme work, but tend to be unreliable for repetitive and routine tasks such as accounting and bookkeeping.

4) Local accounting firms. Local accounting firms tend to be expensive, but qualified. However, often they place their most junior population on the non-profit accounts and tend to squeeze in the non-profits when they have time.

5) Shared Services. Some firms focus specifically on non-profits and their unique issues. These firms offer ala carte services that can be tailored to each specific small or mid-sized non-profit. They can work with start-ups, alongside in-house staff, or supply full accounting department services. By sharing scale and size with other non-profit clients, each client is able to get the expertise and feel they need at an affordable price. Some rural hospitals employ this model by sharing accounting departments or key employees.

Accounting is not a considerable evil. Financial systems that function well supply reliable, timely, and beneficial supervision information. This data can help make key decisions that resolve the direction of a non-profit. Poor accounting can thwart fundraising attempts, lead to poor decisions, and commonly choke the mission of a non-profit. As a sector, non-profits have a long way to go to improve the accuracy and reliability of our financial data. Solutions exist, but it will take proactive boards and strong leadership from menagerial Directors to make a difference.

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