Strengthening Your Nonprofit’s Bookkeeping Practices
Strengthening Your Nonprofit’s Bookkeeping Practices
Nonprofits often face intense accounting regulations that can make bookkeeping overwhelming and challenging. Developing, implementing, and maintaining good bookkeeping practices is key to ensuring your organization’s financial health.
We’re going to cover six areas that nonprofit organizations can focus on to strengthen their bookkeeping practices:
- Chart of Accounts
- Software
- Written Procedures and Policies
- Segregation of Duties
- Automated Entries
- Digitization of Documents / Receipts
Keep Your Chart of Accounts Up to Date
Enforcing good basic accounting practices is probably the best way to improve your bookkeeping practices. It’s easy to fall behind on your chart of accounts (COA) when your organization’s staff members wear many hats. Keeping your COA up to date organizes your organization’s finances and gives interested parties, such as donors and board members, a clearer insight into an organization’s finances. Each COA should contain a name, brief description, and an identification code. To make it easier for readers to locate specific accounts, keep your COA simple with classes that can be coded rather than sub-classes of sub-classes of sub-classes.
Choose a Reliable Accounting Software
Using a reliable accounting software can prevent headaches when it comes to streamlining your bookkeeping practices. Rather than trying to keep track of your accounting in Excel spreadsheets, accounting software makes organizing your data simpler.
There are affordable accounting software programs to choose from, such as
- Quickbooks Online – scalable, pricing ranges from $25 – $180/month based on number of users and features needed, most clients will fall in the ~$80/month range
- Xero – user-friendly, integrates with 3rd party apps for ease of use; ranges from $25 – $65/month based on features needed
- aplos – complete CRM and accounting suite, can handle budgeting, donations, fundraising, as well as accounting and bookkeeping; $59 for the “lite” version, ranging up to $180/month for the advance suite
Cloud-based accounting software has several advantages. First, in today’s world you never know when you might need to work remotely, so having information available to you wherever you might be logging in is convenient. Second, online cloud-based software protects your data. You can rest easy knowing your data is backed up online, and you won’t risk losing it if your computer’s hard drive dies. And most importantly, cloud-based accounting software is more secure because it requires each user to have their own credentials and offers two-factor authentication.
Develop and Implement Written Procedures and Policies
It’s important to have your nonprofit organization’s duties documented. Who is responsible for which tasks? When positions turn over, having documented policies and procedures makes it much easier for people transitioning into a role. They can pick up where the previous person left off without confusion. Develop a schedule and routine to make sure data is accurately and regularly recorded, making it easier to verify everything is processed correctly.
And that leads us into segregating bookkeeping duties as an internal control
Document and Enforce Segregation of Duties
Another important aspect of good bookkeeping practices is to segregate duties among your organization’s staff and/or board members. One pitfall a lot nonprofits fall into is that they allow one person full control of their accounting because, they think that as a bookkeeper, that person should just handle all the financial “stuff” the organization has to deal with.
If the bookkeeper is entering checks into the ledger, have someone else sign the checks to ensure that another party is signing the checks and reviewing them before they go out. And if possible, have a separate person be in charge of petty cash. That allows another person to review the reconciliations of petty cash and the bank statements.
If your nonprofit is small, consider involving your volunteer board members in your accounting practices, particularly in the review process. You could also make it a policy that only board members can sign and review checks.
When Possible, Use Automated Entries
If you have recurring payments, automate them as opposed to manually entering them every month. We all already have too many things to do in a day. Automation saves time and ensures recurring entries will be correct every month.
Digitize Your Documentation
Digitizing your receipts and associated paperwork is a wise move. IRS documentation has to be kept for a certain number of years, and maintaining physical records in file cabinets could lead to loss of documents due to fire, flood, or accidental destruction. Most copiers will also scan documents, and desktop scanners are affordable these days. Digitizing documentation also allows you to attach receipts and invoices directly to an account in your accounting software.
In addition, you can track receipts through many different receipt scanning apps. Just take a picture of the receipt with your smart phone, and upload or attach the file. If you don’t like using an app to record and organize your receipts, you can just use your smart phone camera to take and pictures of them. Then, you can upload them to digital storage or attach them to an email. It’s a great way to reduce the risk of losing your physical receipts and avoid the hassle of having to physically scan them.
Contact Us
These are just a few ways your nonprofit organization can improve your bookkeeping practices.
Brady Ware Nonprofit Advisors want to help you fulfill your mission with financial health and compliance services and a network of nonprofit consultants who specialize in strategic decision-making.