Recently, I have become involved with three nonprofit organizations in my community as their accountant. I was also elected Treasurer of my Toastmaster’s club effective July 1.
Because my experience and education has primarily focused on accounting in a for profit entity, I decided to read a textbook or two on the matter to ensure that I was doing the right things when it came to the accounting functions for these organizations.
What I found was there are differences in accounting between a for profit and a non profit entity. A key difference is the need for the organization to show through their financial activities that they are fulfilling the mission they set forth in their 501 (c) (3) application. In addition, a good portion of the organization’s income comes from contributions, not from sales of goods or services. Donors want to know and feel assured that their donation is being used as intended.
Kathy Ivens writes in her book, Running QuickBooks in Nonprofits, “All nonprofit boards should understand the basics of nonprofit accounting rules (ultimately, the board is responsible for the finances and the reports on finances), and make sure tat the staff understands the rules and follows them.” She goes on to state that she has not encountered a successful for profit business who has inexperienced and untrained people work on their books, but has seen many nonprofit organizations do that very thing.
The most common reason given by the nonprofit organization is the expense of hiring a professional is too prohibitive. Unless the nonprofit organization is lucky enough to have a volunteer with a nonprofit accounting background, it is likely the bookkeeping could be found lacking the key components required for reporting to the board and audit readiness. In the end, it could cost an organization a great deal if their financial transactions are not recorded and reported properly.
One last interesting piece to note regarding non-profit accounting. In many not for profit organizations, the Treasurer also functions as the bookkeeper. This may occur due to lack of volunteers and/or the frugality of the nonprofit organization. The Treasurer is an oversight/supervisory position. Their role is to monitor the work of the bookkeeper and to approve or disapprove their work by the Treasurer. If the Treasurer is also the bookkeeper that key oversight control is lost.
This is just a fraction of what I have learned about non profit accounting. Most non profit accounting is just like for profit accounting, but those few differences are significant. If you have questions about your own nonprofit organization and would like to discuss them with me – I would be happy to meet with you. This is an area of accounting that I really enjoy and I have time available to handle a new account or two.