In their Fall 2008 Nonprofit Observer publication, San Francisco Bay Area CPA Firm Lautze & Lautze offers advice on how to avoid 8 common accounting mistakes among nonprofits (summarized below):
1. Follow accounting procedures
Every nonprofit, large or small, should establish a formal, documented, and detailed accounting process that includes all aspects of managing the organization’s money (i.e., accepting donations, paying bills, depositing donations, etc.). The procedures should be in writing and followed every time by the person who regularly performs the accounting task and anyone that should fill in for that person.
2. Accurate data entry
“Little errors don’t go away; they just become bigger problems.” No discrepancy should go unnoticed. Double-check entries each time and check accounts against bank statements with each entry.
3. Establish a budget
Budgets provide a baseline to prevent overspending and allow the investment of surplus money. Beginning with a basic budget that can be tailored with time is better than no budget at all. Additionally, a “miscellaneous category” is appropriate but should not be the majority expense.
4. Select experts in nonprofit accounting and stay informed
Nonprofit accounting has certain accounting responsibilities that are not applied universally (i.e., contributions). Once an expert in nonprofit accounting has been hired, a board must continue to stay informed about the basic accounting operations and the process.
5. Categorize all money
All money, both in and out, should be appropriately categorized. This is especially crucial for a nonprofit that receives earmarked donations. Everyone involved should understand the different accounts and how they are used.
6. Use a filing system
Establish and follow a daily or weekly filing schedule for all accounting paperwork (i.e., receipts, invoices, bank statements, etc.).
7. Establish a petty cash fund
This fund is aimed at satisfying small expenditures that are easier handled with cash (i.e. buying a pizza for volunteers staying late). It should be handled with just as much care as all other money of the organization. The fund should authorize access for only a limited number of individuals, kept under lock and key, and require receipts for all expenditures.
8. Automatic back-ups of accounting information
A Web-based system has the additional advantage of storing the information off-site should a natural disaster, fire, or other emergency occur.
The key to avoiding many common accounting mistakes is taking your time and double-checking your actions. When in doubt, consult an accounting professional.
The Lautze & Lautze Nonprofit Observer publication, Fall 2008, is available here.
– Emily Chan