As an accountant, it’s important to be on the top of your financial game. Understanding healthy accounting practices, the latest rules and regulations, and protecting your organization’s financial data is key.
Below we highlight 5 nonprofit accounting best practices you can adopt as you go into the new year.
5 Nonprofit Accounting Best Practices
1. Have Internal Policies and Controls
Fraud is a real concern for nonprofit organizations. In fact, 40% of NPO professionals say they put “some or minor effort into helping prevent fraud”, according to Abila’s 2016 Nonprofit Finance Study.
By creating internal policies and controls, you significantly improve your fraud protection.
Code of Ethics:
Implementing a Code of Ethics is one way to show your donors, board of directors, and employees the values and morals your organization upholds. It also reminds your employees to uphold those morals while they’re working.
2. Use Accounting Software Designed for Nonprofits
Nonprofits have unique accounting challenges. And the best way to solve those challenges is to use nonprofit accounting software.
Nonprofit accounting software can streamline, simplify, and strengthen your budgeting, forecasting, HR management, grant management, and fundraising. The software can also provide internal controls over your financial data, helping you secure your information.
3. Create an Annual Operating Budget
Every organization needs a budget, whether you’re a nonprofit or for-profit. Each year you should create a realistic operating budget that you can adhere to as much as possible.
It’s also ideal that your budget get approved by your board. This way your board of directors will understand the upcoming initiatives – and will be more likely to approve increases if necessary because they understand how it’s contributing to your organization’s overall success that year.
Read Tips for Nonprofit Budget Review and Maintenance to learn more about nonprofit budgets.
4. Understand Nonprofit Tax and Accounting Regulations
Nonprofit accounting is a completely different animal than regular for-profit accounting. Two things to be aware of are GAAP and IRS requirements.
GAAP: The Generally Accepted Accounting Principles (GAAP) are guidelines that all accounting professionals must follow. They cover both for profit and nonprofit tax rules. It’s imperative that accountants and financial professionals understand the current GAAP rules and any changes that happen throughout the years.
IRS Requirements: When filing and claiming your tax exempt status, you definitely need to be aware of nonprofit IRS requirements.
5. Create a Multi-Year Plan that Supports Your Strategic Plan
Where will your nonprofit be in 3 years? 5 years?
By creating a multi-year financial plan you can support your nonprofit’s growth. If you want to raise a certain amount of money by year 2020, you’ll probably need to hire some new employees, look at upgrading your fundraising/accounting software, and create some amazing marketing campaigns. By planning for it, you’re able to support that growth and get buy-in from your board ahead of time.