To maintain good financial health, nonprofit organizations should adopt the same bookkeeping best practices as for-profit organizations.
Here are some simple bookkeeping tips to help keep your nonprofit on the plus side of the ledger.
Get with the (Software) Program
There's no shortage of bookkeeping software you can use at your nonprofit. However, you should also consider applications that will integrate with your accounting software to drive operational efficiencies through workflow automation. If you haven't already graduated from using basic accounting software, now is the time to do so.
Any system that relies too heavily on human input is too prone to human error. Given the requirements of nonprofit bookkeeping and fund accounting — possible loss of tax-exempt status is just one of the many potential pitfalls of failing to follow IRS regulations — there's no reason to leave anything to chance. You need latest-generation bookkeeping software, if not the support of an outsourced bookkeeping services provider.
One benefit of using software to keep the books is that it can be customized for fund accounting, which the Financial Accounting Standards Board requires for all tax-exempt nonprofits. Through workflows and account setup, the assignment of funds can be standardized and linked to common transactions — so once you set up the system, it becomes much easier to track revenues and expenditures associated with individual funds. This is absolutely essential at a nonprofit.
In addition to automating the process, bookkeeping software accomplishes two other important objectives: increasing transparency and promoting the sharing of information. Both are important to a nonprofit's financial health.
This is particularly true at smaller organizations that have limited ability to segregate duties. Shared access to software mitigates some of that. In addition, sharing electronic files can create greater efficiencies and save time. For example, if the Chairman of the Board needs to sign off on a grant approval, but is rarely onsite, the organization can share the file online and collect the signature electronically to expedite the process.
Also, if there are any stipulations relative to the funding source for a particular grant application, having a software system in place tends to create stronger internal controls to see that those stipulations are adhered to precisely. That helps make donors feel better about how those funds are being handled or appropriated.
In the end, any system that helps put the account in accountability is good for those on both sides of the nonprofit equation.