Although nonprofits may be exempt from income tax, they still have financial and accounting requirements. This includes projecting budgets and monitoring the results, preparing financial statements and collecting payroll taxes. Accounting processes can become inefficient over time if you don’t monitor them. Here are some suggestions of procedures your organization should review regularly.
Invoicing and reconciling accounts
First off, make sure that the individual or group that’s responsible for your organization’s financial oversight (for example, your CFO, treasurer or finance committee) promptly reviews monthly bank statements and financial statements for obvious errors or unexpected amounts. Doing this quickly can help eliminate headaches later.
Another good step toward accounting function improvement is creating policies and procedures for the monthly cutoff of recording vendor invoices and expenses. For instance, require all invoices to be submitted to the accounting department within one week after the end of each month. Too many adjustments — or waiting for employees or departments to weigh in — can waste time and delay the completion of your financial statements.
You also may be able to save days at the end of the year by reconciling your balance sheet accounts each month. It’s a lot easier to correct errors when you catch them early. Also, reconcile accounts payable and accounts receivable subsidiary ledgers to your statements of financial position.
Designing a coding cover sheet or stamp is another step toward boosting efficiency. How so? An accounting clerk or bookkeeper needs a variety of information to enter vendor bills and donor gifts into your accounting system. Speed up the process by collecting all of that information on the invoice or donor check copy using a stamp. Route invoices for approval in a folder that lists your nonprofit’s general ledger account numbers so that the employee entering data doesn’t have to look them up each time.
The cover sheet or stamp also should provide a place for the appropriate person to approve the invoice for payment. Use multiple-choice boxes to indicate to which cost center the amounts should be allocated. Documentation of the invoice’s payment should also be recorded for reference. And your development staff will want to provide details about any donor gifts before the gifts are recorded in the accounting system.
Another tip about invoices: Don’t enter only one invoice or cut only one check at a time. Set aside a block of time to do the job when you have multiple items to process.
Using software effectively
Many organizations underuse the accounting software package they’ve purchased because they haven’t invested enough time to learn its full functionality. If needed, hire a trainer to review the software’s basic functions with staff and teach time-saving tricks and shortcuts. Also standardize the financial reports coming from your accounting software to meet your needs with no modification. This not only will reduce input errors but also will provide helpful financial information at any point, not just at month end.
And consider recording standard journal entries and payroll allocations automatically within your accounting software. Many systems have the ability to automate, for example, payroll allocations to various programs or vacation accrual reports. But review any estimates against actual figures periodically, and always adjust to the actual amount before closing your books at year end.
These are only some of the responsibilities that fall under the accounting umbrella. Handling these tasks efficiently will help your organization run smoothly. Now is the time to eliminate labor intensive steps that can be automated or that don’t add value.