If you're new to the nonprofit sector, no doubt you've already realized that the financial standards are stricter here than they were in the for-profit world. That can make end-of-year bookkeeping a stressful process — especially at the end of this year, due to new procedures that the Financial Accounting Standards Board (FASB) has implemented for 2019.
So before any more sand slips through the hourglass, let's review the vital end-of-year bookkeeping tasks your nonprofit needs to accomplish to avoid fines or penalties — up to and including the loss of your nonprofit status.
Reconcile Your Restricted and Unrestricted Fund Accounts
As the names imply, the designations "restricted" and "unrestricted" determine how nonprofits can use different funds. Simply put, restricted funds can only be used according to the donor's specifications. This can be simple (e.g. funds for an event) or complicated (e.g. funds for the purchase of a particular item or to be held for a specified amount of time). These funds cannot be used or transferred without the consent of the donor and approval by the nonprofit's board of directors.
Unrestricted funds can be used however the nonprofit sees fit — to pay operating expenses, support fundraising activities or for other general purposes. These funds don't require special board approval.
Obviously, unrestricted funds give a nonprofit greater financial flexibility and are easier to manage. Most nonprofits have a mix of both types, however, and failure to maintain proper classifications can create extra bookkeeping work.
OK, so you recognize the need to segregate restricted and unrestricted funds in principle. But in practice, it can be difficult. Here's some of what you need to do:
- Keep records of restricted fund contribution requirements.
- Maintain a list of contributions over $5,000.
- Maintain a list of in-kind (i.e. nonmonetary) contributions.
- Reconcile both revenue and expenses for each fund and each fundraising event.
- Review, allocate and designate payroll to the appropriate fund and fundraising event.
- Prepare payroll reconciliation.
- Review money market or other interest-bearing account activity and balances.
Each of these areas may be subject to federal, state, grant or government agency audit.
Save Time (and Your Sanity)
Fortunately, as nonprofit bookkeeping grows ever more complicated, there are also a growing number of ways to streamline the process. The most critical step, if you haven't already taken it, is to automate the process using one of the many software applications available.
The importance of automation can't be overstated. Once you've set up the software, you can maintain consistency and continuity through staff shortages and turnover. You can also share your financial information more easily with your CPA or outsourced bookkeeping services provider.
You can even give your board of directors greater confidence and a clearer sense of direction by presenting well-organized financial reports that tell your organization's story.
Best of all, you can update your financials as you go, in real time, so you don't have to scramble to catch up at the end of the year.
Don't Delay — Do It Today!
If you're feeling stressed because you're running behind with your end-of-year bookkeeping this year, use that as motivation to get your nonprofit squared away for next year. Learn more in this e-book about nonprofit bookkeeping best practices.