Hiring a nonprofit accountant is critical to a nonprofit’s success in fulfilling its mission. Selecting an accountant with the proper skills and understanding can be a daunting task. Before you hire your next nonprofit accountant, be sure they have the knowledge to ensure compliance and accountability.
Nonprofit Accountant Responsibilities
One major mistake nonprofit organizations make is handing over the financial management responsibilities to someone who doesn’t understand accounting. A nonprofit’s success depends on whether they have the financial resources available to fulfill its mission. Having an understanding of proper fiscal management will ensure that a nonprofit uses its financial resources according to its mission. A nonprofit accountant’s responsibilities are to track finances so they support an organization’s goals, maintain its financial health, and ensure compliance with essential statutory requirements.
When getting your nonprofit off the ground, don’t minimize the importance of nonprofit fiscal management. Assigning these responsibilities to a volunteer or staff member who doesn’t understand basic accounting will set your organization up for failure. When evaluating an individual to handle your finances, here are the common accounting functions that your bookkeeper / accountant should understand.
At its simplest level, bookkeeping for a nonprofit accountant involves the recording of all money coming in (cash receipts) and money going out (cash disbursements). What makes nonprofit accounting unique are the way cash receipts and cash disbursements are recorded. Cash receipts can be donations, fundraising event revenue, fees for service, grants, loans and earnings from investments. It is important that your bookkeeper understands the differences in the types of revenue received and how to properly classify it.
Another unique characteristic of nonprofit accounting is tracking whether donations are designated for a specific purpose or have no donor designations. Cash disbursements are for expenses and loan payments. Like revenue, there are unique characteristics of recording a nonprofit’s expenses. All expenses must be classified as either program, or support services, including management and general or fundraising.
Beyond the basic bookkeeping of receipts and disbursements, your nonprofit accountant should also understand accounts and pledge receivables, accounts payable, payroll and investments. Additional job responsibilities may include reconciling bank accounts, managing nonprofit payroll, compiling budget data and preparing financial reports. If the bookkeeper / accountant does not have a clear understanding how all these accounting transactions are brought together to develop meaningful financial statements, management will not have the information needed to make informed decisions on its mission and outcomes.
Creating a budget for your nonprofit is essential for planning and carrying out your mission. A budget will outline the expenses necessary to run each of your programs and the management of your organization. A nonprofit’s budget is unique in that it must reflect each expense’s characteristic as to what mission based program it is used for and what management support services it is used for. Preparing an annual budget of income and expenses enables management and the board to make decisions on the feasibility of your mission and your financial health. Once the budget is in place, it is important to monitor the budget versus actual revenue and expenses to measure any irregularities. A regular review of budget vs. actual will uncover any significant differences and determine the plan needed to address these differences.
Your nonprofit accountant / bookkeeper needs to know how to put together detailed nonprofit financial statements so management can make informed decisions. Nonprofit financial statements are much different from for profit statements, even though they both measure an organization’s revenue over expenses and net worth. A nonprofit’s financial statements must segregate revenue by designated and un-designated and expenses by functional area. Without these proper classifications, management will not be able to make decisions on their planning and be able to identify their true financial position.
Taxes and Reporting
Just because you are a nonprofit doesn’t mean that you don’t have to pay taxes or file information with the IRS. If your organization has employees, you must pay payroll taxes like any other organization. Your accountant / bookkeeper has to understand how to make those timely tax payments and how to file the monthly, quarterly and annual payroll tax reports with the state and federal government reporting agencies.
All nonprofits must also file annual returns with the IRS called a 990. The 990 that you file depends on the amount of revenue your organization brings in every year. Failure to file these annual returns can jeopardize your nonprofit status. Some states also have annual filing requirements.
Annual Review, Compilations or Audit
Regardless of the size of your organization, it is a good idea for your organization to undergo an annual review by an independent accounting firm. If you receive government funding, then you might have to have an annual independent audit. A outside review will provide financial transparency and accountability to funding sources, government and donors. Your accountant / bookkeeper must be able to prepare your data for these annual reviews with competence and understanding to save your organization money and the risk of poor internal controls.
Evaluating Accounting Expertise
Now that you know the importance of proper fiscal management for your organization, evaluating for the position should be the responsibility of an experienced, professional accountant or accounting firm. They will be able to make an impartial judgement on the individual’s knowledge and capabilities and help to ensure your accounting responsibilities are in good hands.
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