Financial accounting for nonprofit organizations has always been a somewhat murky area, at least in how it is applied. This is particularly true in the age of political organizations masquerading as nonprofits and visa-versa. That said, the rules for accounting for nonprofits are generally the same as for-profit endeavors and nonprofit management should treat them as such. Here are some tips to attain that goal.
GAAP is the Standard
The only reason to not adopt Generally Accepted Accounting Principles (GAAP) as your financial management standard is if you are worried your accounting and finance practices might run afoul of them. That is blunt, but it is the reality. GAAP is the basis for any sound accounting system as it applies to recording and summarizing financial books and accounting statements. Without it or if it is not followed, financial systems become ripe for exploitation and error-prone.
Some differences do exist between for and nonprofit accounting systems, such as accounting for contributions, asset management, cash and expense accounting processes and cash flow management. Generally, however, GAAP should be followed as much as possible, particularly in the areas of reporting, extraneous to any other federal or state reporting requirements.
Use Financial Accounting for Non-Profit Organizations
Nonprofit accounting software is geared towards the unique reporting and accounting process of nonprofit organizations. This can include state requirements, federal mandates and activity-oriented reporting that is necessary in some cases to maintain nonprofit status. Specific software for fund accounting for nonprofit organizations will allow the tracking of donors and donations, total donation amounts, state and federal contribution limits, grants and gifts as well as create hybrid reports and queries.
A nonprofit accounting software will generally follow the same schedule as a regular accounting system. There are some customized requirements, however. For one, submitting a list of donors in some instances is required with their contribution amounts and aggregate totals. Additionally, you will also likely have to report customized queries to board members and management. Making sure you have each reporting and filing date scheduled will help you stay on top of the requirements and ensure you will never be remiss in getting your data in on time.
Always Be Auditing
Because of the various reporting requirements as well as the federal and state grant monies that nonprofits take, they are basically quasi-public organizations. That means they are subject to audits and reviews at virtually any moment. Executing regular, scheduled and non scheduled audits for parts and the whole of the system is one way of ensuring compliance throughout the year.
You will notice that each of these tips are easy to achieve with a robust software for financial accounting for nonprofit organizations. Not only will this software keep you organized, it will help keep you legally compliant.