Setting up an Accounting Dept– Some Pointers

 

Many growing for-profit and nonprofit organizations find themselves with financial reports that make no sense, “forgotten” revenues and slow bill paying processes. They may be at a point where the part-time bookkeeper is over his or her head and flooded in work. So, what can you do? Below are some ideas to get you going.

Identify accounting tasks

You can look at accounting tasks and divide the work within these tasks. For example, a typical accounting department performs the following work:

  • Pay bills – Accounts Payable
  • Recognize revenues – Accounts Receivable
  • Process payroll – Payroll Administrator

Other tasks associated with an accounting department are: Cash management, bank reconciliations, budgets, financial reporting, and taxes. In large businesses, each of these functions is performed by one individual or more. In smaller firms, tasks are shared and the staff is supervised by a manager or a controller, who often is responsible for financial policies and procedures for the organization.

Analyze functions

Many businesses, including nonprofits, organize their accounting department using flowcharts and job descriptions. You don’t want to have the same task be performed twice or three times, but also,  you don’t want to miss an important process. Some nonprofits hire outside consultants to help them in organizing their department for maximum efficiency, while considering risks and controls. Unfortunately, this last option is usually used after a fraud or loss situation, when people are traumatized and willing to pay for professional advice.

Hire people with proper accounting skills

A common mistake is to assume that accounting is easy and can be done by the person who is a receptionist or works in another part of the organization. Without training or education, this person should be able to perform accounting functions of a full-charge bookkeeper. That’s a mistake and is not fair. Hire accounting people who have the proper education and experience. Accounting managers or controllers should have at least a bachelors’ degree in accounting. Someone with a four-year degree in business and a few years of accounting experience may also qualify.

Segregation of duties

As you organize the department, consider segregation of duties. For example, the person who opens the mail or receives money should NOT be the person who books revenues in the accounting system. If the person running accounts payable is also doing bank reconciliations, then a manager or controller should review the reconciliation and look at cashed checks. Why?  To have check-and-balances, internal controls, to prevent and correct mistakes or misappropriations.

Background checks 

Don’t forget to run background checks on all employees and volunteers dealing with accounting and cash functions. Make this a policy within your organization, so that people understand the situation as one of internal controls, not just paranoia.  Actually, many insurance companies require this step before issuing policies against theft and fraud.

Interested on CPE credits regarding nonprofits?  Online Practical CPE Courses

You can also check out my books:

Nonprofit Finance: A Practical Guide – Second Edition— First edition Nominated for a  2016 McAdam Book Award

15 Quick Tips on Becoming a Great Consultant  — Free on Kindle Unlimited

Working at a Nonprofit — Tips

Thinking about working for a nonprofit?  This sector is an important segment of the US economy with the Bureau of Labor Statistics reporting that in 2014 nonprofits accounted for 11.4 million jobs, 10.3 percent of all private sector employment. So, there are jobs out there within the nonprofit world, but it’s important to note some cultural issues that generally apply to most jobs within this sector. The fact that nonprofits don’t care about profits creates certain differences in the workplace that may not be that obvious.

Here are some pointers about the nonprofit environment to consider:

Supportive environment

While the for-profit business expects employees to be outgoing, ambitious, go-getters, the nonprofit organization looks for employees to get along, to be part of a team. To this end, nonprofits’ employees may receive more hand-holding and more support than in other environments.  Also, the workplace is likely to be more flexible and less formal with good benefits and time-off policies. This type of culture is suitable for those who want to be part of something bigger than themselves and value team processes and causes over personal ambitions.

More time to make decisions

Decisions, including major ones, are made in a team setting, built on consensus. Although there are a structure and managers, teamwork and team decisions are the norms. This means that many decisions take a long time to be made,  after meetings and considerations. Compared to the for-profit model, the nonprofit is more democratic, but it comes with the price of things moving at a slower pace. This can be frustrating for those used to the for-profit world, but it can also give you the opportunity to be heard.

External forces

Nonprofits usually depend on donors and grantors to operate and any changes within these groups can affect the organization in unexpected and swift ways. Employees need to change priorities quickly and to adapt to a new situation regardless of what the boss said just a few days before. This can be disconcerting and stressful to many, so employees need to be flexible and calm. If you’re looking for work at nonprofits, inquire about funding and programs stability.

Variety of contacts

Employees at nonprofits have contacts with customers, government entities, and volunteers, making the people very versatile in dealing with different situations. In addition, many people are attracted to nonprofits because they are bright, passionate and committed to the organization. This combination can result in a very interesting workplace, albeit it can also get too dramatic. Since many employees have personal investments in the organization, disagreements and issues may become emotional. Understanding this situation can help in not taking things personally and not becoming part of the drama.

These are just a few pointers that are general in nature based on my experience. As you can tell, working at a nonprofit is not for everyone, but it can be very rewarding on a personal level to certain individuals. Salaries may not be as competitive as regular businesses, but perks like flex schedule, benefits and the ability to make a difference in a community are very attractive for many people.

 

Interested on CPE credits regarding nonprofits?  Online Practical CPE Courses

You can also check out my books:

Nonprofit Finance: A Practical Guide — Nominated for a  2016 McAdam Book Award

15 Quick Tips on Becoming a Great Consultant  — Free on Kindle Unlimited

Is Your Nonprofit Well-Organized?

Are you starting or organizing your nonprofit?  Any business needs a setup to operate effectively, and nonprofits are no different. A basic organization may be a no-brainer for some people, but may not be that obvious many as well.

One of the challenges of nonprofits is to create and manage a structure that works well. Many founders of nonprofits are not managers and do not have a background in management. They are “program” people. They created the nonprofit to fulfill a goal, a dream that they are familiar with, but management is not their expertise.  Knowing the basic structure of a nonprofit can only help in setting up an organization that is functional.

It is important for founders and boards of directors to realize this issue and to find proper personnel or volunteers to fill out the needed spots. I have seen new, small organizations fail to follow their mission statements because they didn’t have a basic infrastructure, management, personnel to deal with proper insurance, and other risk factors.

A common structure is for nonprofit operations to be divided into three areas,  all supervised by the board of directors that often employs an executive director to oversee operations.

  • Programs/ Services — MOST IMPORTANT 

With no program, the organization has no reason to exist, so this area is crucial to any nonprofit. Programs follow the mission statement of the organization.  If the mission is to feed the homeless, for instance, you won’t see programs to improve antique cars.  When in doubt, read the mission statement carefully.  Most expenses are expected to be happening in this area.

  • Management and General — usually overhead

Management and General area is the backbone of the organization, including administration and accounting.  It’s also called General and Administration or G&A. Someone needs to pay the bills,  select insurance, pay employees, all functions of this area.  Usually, tasks cannot be assigned to a specific program and are considered to be overhead by many grantors.  This area typically incurs the most expenses after programs.

  • Fundraising

This is the marketing arm of the nonprofit, dealing with grants, events, and overall fundraising activities.  Also known as “development,” people in this area contact donors, write grant proposals, follow up on prospective donors, including business and foundations. Fundraising should have the least costs of a nonprofit, unless the org. is a new one or starting a new major program.

Identification of these three main areas of nonprofit operations is crucial to set up proper accounting systems, internal controls, reporting, and management.  Sometimes it’s not that obvious.  For example, someone working in contract compliance is most likely part of management, even though the work relates to programs as well.  Cost allocation can be a challenge to many nonprofits.

BEWARE>>> Note that tax returns and most financial reports are classified by these three areas, and the IRS asks about the organization mission statement on its 990 forms to verify that indeed the programs are linked to the org. mission.

Check out the book “Nonprofit Finance: A Practical Guide” ––  First edition Nominated for the McAdam Book Award