No organization, profit-making or otherwise, can survive without a modern sound accounting system in place. The specifics of the financial accounting systems of different industries or organizations may differ, but the principles and applications are often the same. Whether you are running a small charity or a global non-profit organization, these five tips will prove invaluable in preventing financial trouble in the organization and in ensuring compliance with the legal and generally accepted accounting principles.
- Accounts bookkeeping should be left to professionals
The biggest financial mistake that many nonprofits make today is failing to accord the accounting process the professionalism it demands to ensure effective management of resources, especially among small charities and community organizations. What most of these organizations do is to assign untrained staff members or volunteers the challenging task of professional accounting, something that eventually proves costly according to a report by financial forensics firm Acuity Forensics.
Experts advise the management of every nonprofit to invest in professional bookkeeping to prevent cases of intentional and unintentional fraud and gaps in the organization’s financial records. The bookkeeper may not even need to be a permanent employee – some small organizations may need a part-time or remote accountant a few times a week to ensure that all their assets and liabilities are properly managed.
- Track every financial transaction and keep meticulous records
Just like a profit-making business, a non-profit making organization uses an accounting structure that is supposed to make it easy for the stakeholders to carry out auditing. Whatever the organization deals in, it is vital that all the financial records and statements are kept and regularly updated to always keep them audit-ready.
Ensuring that all financial transactions of the organization are accurate and their accounting details up-to-date not only keeps the organization running smoothly but also ensures that it is ready to update the donors, the board of directors or any other stakeholders whenever called upon.
- Stick to the Generally Accepted Accounting Principles
The GAAP are the standard guidelines for all forms of financial accounting. It covers the rules and conventions that every qualified accountant should follow when keeping and making summaries of financial statements.
While there may be a few differences in how nonprofits account for contributions, assets, and cash expenditures, most of the core principles of accounting are applicable to these organizations and should be applied in their financial records.
- Choose the right accounting software
Good accounting software for nonprofits is an essential component that can fine-tune the efficiency, productivity, and ease of accountability in an organization. Such software will have advanced tools designed for nonprofits that may not be available or good enough in enterprise accounting software. These include how donations and grants are received and tracks, the types of reports to generate, and classification of functional expenses among others.
- Schedule regular accounting reminders
Depending on the level of activity on a nonprofit’s books, the bookkeeper should schedule daily, weekly, or monthly reminders to proof all records and plan upcoming aspects of the accounting. The right accounting software should have these reminders built-in already, but it is good to make it a habit. Regular reviews of financial transactions and records is important to ensure that all categories are on track and that when the reports are generated, they will be accurate regardless of the time and record types preferences.
A sound financial accounting system today is one that provides real-time updates on the crucial elements of an organization. A nonprofit organization can win over hearts and minds of all stakeholders with a system that can provide real-time cash flow updates, donations and grants, expenses, invoices, taxes, and asset value at the touch of a button. These five accounting tips should be a great starting point for you if you are interested in ultimately setting up such a robust system