Nonprofit Accounting Cleanup: How to Deal with a Mess

On today’s episode of A Modern Nonprofit Podcast, our special guest is the one and only Tosha Anderson, our very own founder and CEO. 

The conversation today has a very simple focus, 5 red flags that your nonprofit accounting needs improvement, even when it may not be recognized. 

Red Flag #1: Bank Account Reconciliation 

Whether the business is accrual or cash basis, it does not matter. Reconciliation is necessary and the bare minimum for successful completion of the accounting role. 

The accountant must post all transactions that filter through the bank account. Once these have been transferred into the accounting system, QuickBooks for example, reconciliation is the next step. 

This is how businesses prove that all transactions that enter the bank account are included in the accounting system. 

Consider it like an internal audit and a necessity. We’re talking ground floor here when it comes to expectations for the accountant. Executive Directors should be checking off on this task, signing off, however they want to approach it, to assure that it is being completed. 

If this is not being done, then it’s time to recognize the huge red flag in business’ processes. 

Not only should this be completed in general, but completed consistently. Infrequent completions of this should also indicate trouble in paradise. 

Red Flag #2: Lack of Financial Reports 

Speaking of infrequencies, the lack of financial reports can indicate another red flag. As a leader of an organization, if financial reporting is inconsistent or difficult to obtain, then it’s likely there are some issues with the accounting. 

Another tip here could be vast differences in the financial reporting based on what is expected and what is actually reported. 

Nothing is perfect, so of course there are holes that businesses experience in their processes. For example, if a financial report is produced on the 15th of every month, but an invoice needed for the report can’t be obtained yet, then there may be some issues here. Backtracking and making sure the holes are filled, especially if an issue like this is repeated, can be where deeper rooted issues exist. 

Consider tracking the process back all the way from the beginning to understand why issues like this keep occurring. Fixing the problem at the root makes for a sustainable solution. 

Red Flag #3: Timely Revenue Streams 

It’s no secret that in the nonprofit world, revenue can largely be stimulated from donations and outside funding sources. Revenue in business works best when it’s consistent. Shocking, isn’t it?

Historically, if your business has received timely payments from the donors/funders and then suddenly the revenue stream has slowed, trust but verify the situation. 

Of course, when relying on external sources for funding, there is always the possibility that the issue lies within the external source. It doesn’t hurt however, to check the situation and understand why dollars may be coming in slower than usual. 

A few tricks here are to assure that invoices are being prepared and prepared correctly. Finally, make sure they are actually being sent off the funding source. Surprisingly, this happens more often than it should. 

When it comes to client relationships, it can be helpful to view your donors and funders and a client and that you are in charge of maintaining that relationship. Call them, schedule meetings/lunches with them, and simply ask what the issues are. 

Problems can arise from either side, but addressing them head-on seems to produce the most results. 

Red Flag #4: Auditor Feedback

Many times an auditor will give you subtle feedback to help with addressing significant issues.  If you begin to notice multiple adjustments to correct the books, then it’s likely that there is an issue. 

This is a great space to have an open and honest discussion with the auditor about where things are going wrong. It also provides a great opportunity to fix the issues. 

Auditors are resident experts. They see many different books, businesses, and systems. Listen to them! 

Red Flag #5: Book Closing Turnarounds 

When the books exceed 25, 30, 45, or even 60 days to close them and produce the financial reports, then there may be a serious issue. 

Without a valid excuse, it’s very likely that the accountant is overwhelmed with their assignments. Processing could be an issue, they may not understand the expectation, quick turnarounds, etc. The possibilities are endless, but be sure to communicate clearly defined expectations with your team. 

Please be sure to engage with the interview. Whether you enjoy listening to it, reading about it, or watching us on YouTube, make sure you review, share, and engage with A Modern Nonprofit Podcast. You can find Tosha and the Charity CFO team on Youtube or our website, thecharitycfo.com!

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