Financial Management
Your accounting department is the heart of your nonprofit. Although departments such as programming or fundraising may seem to have more obvious relationships with your nonprofit’s mission, your accounting function ensures that the whole organization runs well — and remains healthy over the long term.
Indeed, accounting inefficiencies and chronic processing delays can make everyone’s job harder and eventually affect your nonprofit’s ability to serve its constituents. Here are several ideas for keeping this essential function operating at full capacity.
Take the first steps
A good first step toward accounting function improvement is creating policies that set cutoff dates for invoicing and recording expenses. For example, require staffers to submit invoices to your accounting department by the end of each month. Otherwise, your accounting department wastes time making adjustments and must delay financial statements. It’s also a lot easier to correct errors when you catch them early. Banks may be responsible for errors only for a limited time, so accounting staff needs to report them immediately.
Improving efficiency can be as simple as designing a coding cover sheet. Accounting employees need 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 one page, including your general ledger account numbers, so that the employee entering data doesn’t have to look them up each time.
If you pay your bills electronically, you may need to find a different way to distribute this information. Use your billing software to customize the process so that all participants (including external accountants and contract workers) can easily access it.
Another tip: Accounting employees shouldn’t ever enter only one invoice or cut only one check at a time. Setting aside a block of time to do the job when there are multiple items to process is much more efficient.
Standardize whenever possible
Many organizations underuse the accounting software package they’ve purchased because they haven’t invested enough time to learn its full functionality. If required, hire a trainer to review the software’s basic functions with staff and teach time-saving tricks and shortcuts.
When accounting personnel are up to speed on the software, it will be easy for them to standardize reports to meet your nonprofit’s needs without modification. This not only will reduce input errors, but also will provide helpful financial information at any point during the year — not just at month end.
Along the same lines, your nonprofit should consider performing standard journal entries and payroll allocations automatically within your accounting software. Many systems have the ability to recall transactions and can automate, for example, payroll allocations to various programs or vacation accrual reports. But any estimates against actual figures should be reviewed periodically and adjusted to the actual amount before you close the books at year end.
Commit to continuous improvement
Accounting systems that aren’t monitored can become inefficient over time. So encourage employees to be on the lookout for labor-intensive steps that could be automated — or for processes that don’t add value and might even be eliminated. Accounting employees should also note any unusual transactions. If necessary, contact your organization’s auditor to ensure that such transactions aren’t being reported improperly.
In addition, make sure that the individual or group (such as your CFO or finance committee) responsible for your organization’s overall financial oversight reviews critical documents for errors or anomalies. These include monthly bank statements, financial statements and accounting entries.
CEOs and board members, in turn, need to keep accounting staff informed about operations and development activities that will require the accruals of pledges and awards of grants. And both executives and accounting staff should ensure that restricted funds are tracked.
Get a boost
Some organizations know they have accounting department issues because vendors complain about late payments or employees regularly lose files or don’t know how to use the accounting software. But many don’t realize they have a problem until they take steps to fix it. Chances are your accounting function can benefit from an efficiency boost.