Attention nonprofit board members and executive directors: If your accounting department cannot perform these 7 essential functions, then you need a new accounting department

10 Mar

Show me an organization that cannot do one or more of these 7 basic functions, and I will show you an organization that needs a new accounting department.

At our firm we’ve coined a name for these 7 basic functions: the “Financial Reporting Baseline™” or FRB.

As you read these 7 basic functions, ask yourself if you are getting this minimum level of performance from your accounting department.

(1)    Monthly reporting package:  Your accounting department prepares a monthly financial reporting package consisting of, at the very minimum, a Balance Sheet, a Statement of Activities (commonly called an income statement), and a Cash Flow Statement.

(2)    Timeliness: The monthly financial reporting package is prepared on a “timely” basis.  The definition of timely varies from one organization to the next, but if it takes more than two or three weeks, it is no longer timely.

(3)    Reconciled: Your accounting department reconciles all bank and investment accounts every month.  If this is not done you really do not know how much money you have.

(4)    Restricted funds:  Your accounting department tracks and clearly reports the status of your donor restricted funds.

(5)    Different levels of detail:  Your accounting department is capable of producing financial reports in different levels of detail.  This is sometimes referred to as “vertical” presentations.  Think of your board getting very summary level information, your finance committee getting more detail, and your executive director getting all details.

(6)    Department and program data:  Are you able to easily get your financial information segmented by departments and programs.  We sometimes refer to this as “horizontal” presentations.

(7)    Budgeting:  Does your accounting department budget on both a cash and accrual basis?  The oddities of nonprofit accounting make this particularly important (assuming your organization reports on the accrual basis, which most organizations do).  If you budget only on an accrual basis, you lose information about your cash flows.  If you budget only on a cash basis, your budget may not line up properly with your actual performance which reduces the helpfulness of budget to actual analyses.

These 7 basic FRB functions apply whether your organization has a budget of $500,000, or $500M.  They are in fact so basic that if your accounting department cannot do these things it calls into question the quality of information you are receiving to run your organization.

For a more complete explanation of the FRB, see the article on our website called:  “Don’t Operate Blind: Jump Start Your Accounting Department.”  Find this article, and other articles relating to nonprofit financial management written by me, at:  http://www.yptc.com/NEWSRESOURCES.aspx .

Comments welcome.

Eric Fraint, President and Founder
Your Part-Time Controller, LLC

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