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Nonprofit Bookkeeping Tips | Supporting Strategies

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Nonprofit Bookkeeping: 3 Tips for Audit-Ready Financials

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If you're in the nonprofit sector, sooner or later you may face a mandatory audit. Prepare today with these three nonprofit bookkeeping tips.

Nonprofit businesses face greater bookkeeping challenges than for-profit businesses. As just one example, every nonprofit that receives more than $750,000 in federal funds within a year is required to have a U.S. government audit. There are a host of local and state compliance requirements to navigate as well, with some states requiring independent audits for nonprofits that have as little as $25,000 in annual revenue.

What can you do to ensure the inevitable audit goes smoothly at your nonprofit, with minimal disruption? You can start by establishing these three bookkeeping best practices.

1. Stick to Generally Accepted Accounting Principles
Established by the Financial Accounting Standards Board, generally accepted accounting principles (GAAP) are procedures designed to ensure consistency and transparency in preparing and reporting financial information. The goal is to enable apples-to-apples comparisons among public companies, private companies, nonprofits, investors, consumers, bookkeepers, accountants, regulatory agencies and anyone else seeking financial information.

When participating in a government audit, the last thing you want to do is raise any red flags — and that's the first thing that will happen if the auditor finds you're not using GAAP.

2. Implement Robust Controls
Ensuring robust financial controls are in place is more challenging for nonprofits than for for-profit businesses. The use of volunteers and professional fundraisers, the need to accurately classify and categorize expenses, the varying (and often very detailed) requirements of donations and grants — all of these are potential regulatory tripwires. Nonprofits that lack adequate financial controls run the risk of compliance issues that could lead to serious consequences, including loss of tax-exempt status.

Along with GAAP, you need top-notch bookkeeping support to implement and enforce robust financial controls. A government audit is not the time to discover your controls have been lax.

3. Insist on Separation of Duties
Technically this also falls under the heading of financial controls, but it's important enough to warrant a category of its own. Under no circumstances should any single person be responsible for both expenditures and approvals. No one who uses a credit card to pay expenses for your nonprofit should also have sole approval of paying the bill for that credit card, for example. A second set of eyes needs to review every transaction.

If complete separation of duties is impractical at your nonprofit, consider enlisting the help of an outsourced bookkeeping and controller services provider to provide objective, third-party oversight. And don't assume that the mere possibility of periodic audits will serve as a deterrent to fraud. You could be in for an unpleasant surprise.

You Shouldn't Have to 'Get Ready' for an Audit
No one looks forward to an audit. But if you establish these best practices and follow them consistently, an audit will be a routine part of operating your nonprofit.

Learn More About Nonprofit Bookkeeping

At Supporting Strategies, our experienced, U.S.-based professionals use secure, best-of-breed technology and a proven process to provide a full suite of bookkeeping and controller services. Are you ready to learn how you can move your business forward? Contact Supporting Strategies today.

Chris Pentrack

Author:

Chris Pentrack

Managing Director Chris Pentrack, Supporting Strategies | Pittsburgh, provides bookkeeping and controller services to growing businesses.

Legal and Tax Disclaimer

This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.