As a non-profit organization or a 501(c) organization, you’re subject to a bit more financial scrutiny than other organizations. With differing fiscal year-ends, restricted and non-restricted funds, and different overall financial requirements and reports, your nonprofit accounts have to be perfectly organized to keep your organization functioning – and legal.
On the most basic level, keeping your nonprofit financial organization is rather simple. While you should keep accurate reports and have a secure accounting process, it boils down to your nonprofit’s financial reconciliation – or lack thereof.
Skipping over or inaccurately reporting and tracking your funds can lead to huge issues now and in the future. From mishandling of funds to low cash flow, inaccurate reports, and more, financial reconciliation is one step in your nonprofit’s accounting you shouldn’t bypass.
Nonprofit financial reconciliation, or reconciling your organization’s bank accounts is a task every business performs. It is the process of matching your incoming and outgoing cash transactions in your records to those of your bank statement over a specific time period.
Reconciling your organization’s accounts is extremely important and is essential for both identifying bank and accounting errors along with preventing and detecting fraud. This is helpful due to nonprofits are more susceptible to fraud, with 59% of fraud schemes being related to direct transactions (the remaining 41% is due to corruption) [Source].
When the baseline of your expected matches your actual, it’s more likely to produce accurate reports and reliable forecasting.
Assuming you’re working with a new month or a new nonprofit (there’s no backtracking to do), reconciling your accounts is simple, but tedious. You’ll need access to your bank statement, general ledger of cash activity, and expected balance for the time period, you’ll also want to have a spreadsheet or accounting software on hand to keep track of and match transactions.
First, you’re going to record any deposits on your bank statement that are missing from your ledger or records and the amount. Subtract the amount from your expected balance – you’ll also need to investigate the difference. It may simply be a timing issue.
Next, you’ll repeat the process with withdrawals. But, rather than subtracting from your expected total, you’ll add it to your expected total.
Now you’ll compare your new expected balance to your bank statement’s balance. If they don’t match you’ll need to examine the deposits and withdrawals again to find what’s missing. Any discrepancies found should be recorded, researched, and resolved.
As we mentioned before, reconciling your bank accounts is a relatively simple process for most. It becomes difficult and time-consuming once your organization begins to have many transactions throughout the month.
To continue to stay on top of your nonprofit’s accounts and keep accurate records, here are three tips to follow:
As a small nonprofit organization with fewer transactions, reconciling your accounts monthly is a good practice to have. Once your nonprofit grows, you may want to consider reconciling your accounts bi-weekly, weekly, or even daily.
If you haven’t been reconciling your accounts until now and have a substantial amount of records to go through, pay a professional to help you catch up. There may be errors from past months that are still affecting your cash flow that a professional will catch much quicker than you on your own, saving you time and money later.
Whether it’s you or a team member, standardize your account reconciliation process. Invest in a system or set up an Excel spreadsheet that is dedicated to reconciliation. Write out an SOP to ensure that whoever is doing your reconciliation, they’re following the same process each time, leaving little room for errors and ensuring that if there are errors, they can be identified quickly.
If you’re a nonprofit organization and you need help setting up your accounting systems or outsourcing your finance department, connect with us at ModVentures today.