When you consider the amount of money that goes into non-profits—from bake sales to online fundraising—it’s shocking to think that accounting mistakes might slip through. But, in fact, mistakes do occur. But, thankfully, this doesn’t mean they’ve cost you your mission. Non-profits are required by law to audit their financial statements and, in most cases, they are required to file audited financial statements with the IRS.
Here are four common accounting mistakes your NPO should avoid.
When it comes to managing money, the smallest nonprofit is no different from the largest corporation. In fact, the smaller your organization, the more important it is to create a solid financial management process.
Having formal procedures for financial and bookkeeping tasks not only helps to ensure that your organization’s books are fully and accurately prepared and that they are kept current; it also reduces the chance of legal liability.
If you go into debt, you will probably always be in debt. By controlling your spending and saving what you can, you can easily pay off any debts you currently have. If you don’t have debts, that’s even better. Compound interest can be your best friend or your worst enemy: the more you save, the better off you’ll be.
Nothing screams “amateur” more than having a bunch of mistakes in your financial records. If you’re like most business owners, you probably enter transactions, payments, and withdrawals into your accounting software manually. That’s fine, but it’s vital that you follow a routine and check and double-check every entry before you submit it to the account. Mistakes in payments and deposits, in particular, are easy to make.
There are plenty of nonprofits out there that have the impression that overhead expenses are inherently a bad thing. The idea is that overhead expenses are not mission-critical. That is, overhead should be reduced as much as possible in order to devote all organizational resources to direct service. I have been guilty of holding this view myself. However, this has become quite controversial lately as nonprofit professionals see overhead as a long-term investment rather than a short-term unnecessary expense.
Non-profit organizations accounting mistakes can be avoided by hiring accounting professionals. For instance, when non-profit organizations are dealing with complicated and unfamiliar financial matters, they can get confused and make mistakes that cost them money.
These mistakes can as well be harmful to the reputation of non-profit organizations as well. When hiring a non-profit organization’s accountant, the non-profit organization should look for accountants who understand and respect the values and goals of the non-profit entity. Contact us today to get started.