4 common accounting errors for nonprofits to avoid

It may be tempting to try to save money and perform your nonprofit’s accounting tasks internally. But if your staff isn’t experienced and properly trained, mistakes are likely to occur — with potentially serious repercussions. Some accounting mistakes are common among newer nonprofits and smaller organizations that attempt to go it alone. In particular, work to prevent:

1. A laissez-faire attitude toward rules. Even the smallest nonprofit should establish formal, documented and detailed procedures for managing bookkeeping and accounting tasks. Your process needs to address all aspects of managing money, including the proper way to accept, document and deposit donations, pay bills, and handle every step in between. Put your procedures in writing and ensure staffers follow each step, every time. This helps minimize the chances of skipping something important and makes it possible to have cross-trained employees fill in for those who regularly perform specific accounting activities.

2. Data entry mistakes. It’s easy to wreak havoc on your accounts by entering a $500 payment as $50 or transposing numbers, so require employees to check and double-check every single entry. Also, reconcile accounts against bank statements immediately, and don’t overlook even the smallest discrepancy. Little errors don’t go away; they just become bigger problems.

3. Budget-free decision making. You can’t control overspending or invest a surplus if you don’t know they exist. That’s why budgets are important. They offer a baseline. Budgets don’t have to be intricate to be useful. Just look at a few months’ worth of bills and deposits to set a starting point. Then refine your plan as you go along. Include a “miscellaneous” category, but don’t allow it to account for the majority of your expenses.

4. Disorganization. Properly store and file documents such as receipts, invoices and bank statements so you can easily find them when you need to create reports, generate financial statements and complete your IRS Form 990. Establish file naming conventions and secure storage locations and mandate a daily or weekly filing schedule for all accounting paperwork.

For most organizations, it’s best to have qualified accounting professionals handle such tasks as payroll, accounts payable/receivable, financial statements and tax compliance. If you have the expertise on staff, great! If not, consider outsourcing these critical tasks. Contact us for more information.

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