Financial Mistakes to Avoid with Nonprofit Clients
Professionals from diverse backgrounds regularly flock to not-for-profits for a myriad of reasons, not least because so many of them view not-for-profits as an excellent way to impart meaningful, positive change on the world. Despite the good intentions and moral nature of so many not-for-profits and those who work for them, however, they must still follow strict financial regulations which can impose steep costs if violated.
Here are some common not-for-profit financial mistakes to avoid, and how accountants can help steer the not-for-profits they’re involved with towards legally and morally secure waters while they make a difference.
Good intentions aren’t everything
Many of those who are involved in not-for-profits but are unfamiliar with the intricacies of the financial world don’t realize that good intentions aren’t everything, and that even well-meaning not-for-profits routinely find themselves violating national or international financial standards thanks to ignorance or purely technical mistakes. That’s why it’s imperatives that accountants make it clear that not-for-profits aren’t immune from regulatory scrutiny; indeed, many not-for-profits are specially targeted precisely to guarantee they’re not being used as shell organizations.
So, how can accountants make a difference when it comes to helping their not-for-profit avoid a terrible financial mistake? The first step is education; accountants need to sit down with senior leadership officials and discuss some of the ins-and-outs of the financial world that the not-for-profit’s leaders will need to know about. Common financial mistakes made by rookie not-for-profits is a great area to start, as reviewing the gaffes of others is one of the easiest and most effective ways to guarantee you don’t commit them yourself.
Once you’ve reviewed the absolute basics, you can begin diving into each one in greater depth. After you’ve discussed the importance of accurate data entry and record keeping operations, for instance, you can discuss the important of data security and financial privacy with not-for-profit employees who may not be well-versed with either of those subjects. Accurate financial reporting is probably the most crucial aspect of a not-for-profit’s healthy future, so take some time to delve into the world of auditing and accurate digital record keeping with your non-profit professionals.
A culture of transparency will help you avoid many of these financial mistakes; essentially, if you’re accurately keeping track of all incoming donations with free background checks and are very open to the public about where your money originates and how it’s used, you can sleep much more soundly. Accountants thus have a professional as well as a moral responsibility to make sure the not-for-profits they’re involved with have stellar record keeping operations and are a transparent organization.
Preventing accounting errors
Despite the high costs that many for-profit companies and not-for-profit organizations alike pay for violating financial standards, accounting errors are nonetheless rife across the market. How, then, can a dedicated accountant work to ensure the legitimacy of their not-for-profit’s financial reports? The first step is to rely solely on trained professionals, and to avoid making important financial work a volunteer-based effort.
Many not-for-profits are justifiably concerned with saving every possibly penny so that their cause might receive more funding, which leads many of them to quasi-outsource mundane financial duties to unpaid interns or volunteers. There’s a tremendous risk present in this strategy; if a dedicated and well-trained financial professional isn’t the one handling your not-for-profits data entry, record keeping, or audit process, you’re essentially doomed to failure from the get-go. Read more on why untrained volunteers are so deadly to the cause of not-for-profits when it comes to finances and you’ll see how imperative it is to hire a pro, regardless of the cost.
Without a sound accounting professional on your not-for-profit’s team, you’re playing fast and loose with your financial reporting. Only a savvy accountant can properly categorize incoming revenue, for instance, a key step in guaranteeing that your not-for-profit doesn’t miscatalogue its income, one of the most frequent causes of financial penalties for non-profits. Similarly, a dedicated financial guru can help the not-for-profit cut back on wasteful spending; just because you’re not running the company to make a profit doesn’t mean it can needlessly throw money into the firepit.
Finally, good accountants will understand that regardless of the importance of having a good financial professional on your team, a not-for-profit is a team effort that demands a little bit from everyone. If not all team members who are dealing with financial record keeping or matters related to the non-profit’s income aren’t regularly trained, you’re asking to violate financial standards that will incur a fine. Take some time to guarantee that every team member is properly trained by a financial professional ahead of time if you want to avoid a small but costly mistake. Not-for-profits can’t avoid every financial mistake, but with the help of a dedicated accountant every non-profit can avoid needlessly violating rules that could jeopardize their operations.
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Gary Eastwood is a CPA licensed senior accountant from Seattle, Washington. He received his CPA license from the Washington State Board of Accountancy in 2001 before relocating to Onawa, Iowa in 2008. Over more than 15 years of accounting experience, Gary has worked with multinational health service providers and independent CPA firms. He has a...