It is crucial for accountants in the nonprofit organizations to be on top of their game. Protecting your organization’s financial data, understanding the latest financial regulations and rules, and adopting healthy nonprofit accounting practices is critical. Here are incredible nonprofit accounting best practices every accountant should uphold.
Use of Accounting Software Designed for Nonprofit Entities
Nonprofit entities encounter unique challenges, and the use of accounting software for nonprofits is the best way to resolve them. Accountants can use this software to strengthen, simplify, and streamline their grant management, forecasting, fundraising, budgeting, and HR management efforts. They can also use nonprofit accounting software to control their financial data and protect and secure their critical information.
Understand Accounting Regulations and Nonprofit Tax
IRS and GAAP requirements in nonprofit accounting are different from regular for-profit accounting. GAAP refers to guidelines that all accountants regardless of their field of specialty must follow, and it applies to both nonprofit and for-profit tax rules. Financial professionals and accountants should understand GAAP rules and keep pace with any procedural or policy changes that happen throughout the fiscal year. Moreover, accountants working in nonprofit organizations need to be aware of IRS requirements before they file and claim their tax-exempt status.
Formulate Internal Controls and Policies
Every nonprofit organization is concerned about fraud, but unfortunately, many nonprofit professionals put less effort into fraud prevention. Nonetheless, formulation of internal controls and policies can help a nonprofit entity to protect itself from fraud. One of the ways a nonprofit entity can show its employees, the board of directors, and donors the morals and values it upholds is to implement a code of ethics. Also, it reminds staff members to be morally upright even as they go about their daily work.
Establish Relationship with Other Departments
While many accountants don’t think of healthy relationships as a necessity, it’s a crucial accounting function. As such, nonprofit organizations should keep everyone on the same page through constant communication with other departments about grants, procedures, and policies. The best way to develop a healthy relationship with other departments is to hold training on accounting principles such as GAAP and IRS and schedule regular meetings to update fellow departments on procedures and policies.
The board of directors of a nonprofit entity plays a critical role in its success. As such, it is imperative to allow every board member to be 100% independent. That means a board member should not be an employee of the nonprofit or have a relative working there. That ensures every member votes in the best interest of the organizations without the influence of other internal factors.
Create an Annual Operating Budget
Whether it is a for-profit or nonprofit entity, every organization needs to budget. It is imperative to create a realistic operating budget that can guide the expenditure of an organization. However, changes will always occur in the financial year, so never rest assured that everything is well. A budget can evolve to allow nonprofit entities to spend more or limit expenses to meet specific goals. It is ideal for a nonprofit entity to present its budget to the board for approval. Nonetheless, even the best-laid plans can go awry down the line, and the same can happen to a well-planned budget.
Assign Financial Practices to Different Staff Members
Of course, every accountant wants to protect their organization from any potential fraud. The best approach to do this is to assign financial tasks to different staff members. It helps keep employees ethically honest and protect the integrity of an organization’s accounting data. That enables employees to notice discrepancies and troubleshoot to find their source. Fraud remains one of the top concerns of nonprofit organizations, but assigning financial tasks to different accountants can reduce the chances of fraud occurring.
Author Bio: Jeremy is a tech and business writer from Simi Valley, CA. He’s worked for Adobe, Google, and himself. He lives for success stories, and hopes to be one someday.