Let’s be honest - most people who work in the nonprofit sector wear many different hats. Sometimes the people responsible for preparing nonprofit financial reports do not have formal training. More often, they simply don’t have time to prepare reports that are accurate and meaningful. We often meet nonprofit accounting staff (or volunteers) who are also responsible for human resources, IT, office and facility management, program evaluation, administrative tasks, or all of the above! This is especially true for smaller or new nonprofit organizations.
So what can you do? Even if you lack time and expertise, there are a few things you can do to improve your financial reports. With practice, consistency, and a little help from the rest of your team, you’ll be able to provide solid data that is crucial to the management of your organization.
Get to Know Your Statement of Activities
Your statement of financial activities (otherwise known as an income statement, profit & loss, or budget report) shows your revenue and expenditures during a certain period. At the end of every financial period, after all your transactions for that period have been entered, be sure to review this statement carefully. Look for anything that looks unusual or doesn’t make sense, and investigate these red flags accordingly. Compare the period you are preparing to a previous period, and investigate any large decreases or increases in each account. Ask yourself, what was the total of this account last year? How does it compare to our annual budget? Are there any significant differences from the last period, and if so, why?
Prepare and Review Monthly Bank Reconciliations
We can’t stress enough how important it is for your organization to reconcile all bank and credit card accounts monthly. This process can be time-consuming and tempting to procrastinate, but we can guarantee that putting it off will cost you more time and headaches in the long run. Monthly reconciliation is the best way to identify clerical mistakes, suspicious transactions, or anything you simply forgot to enter into your accounting system. If you have any items that are not reconciled within a few months, such as undeposited checks, be sure to follow up with the appropriate party.
Share Your Reports With a Colleague or Committee
A second set of eyes is indispensable in identifying errors or items that need clarification. Some nonprofits have established finance committees to review preliminary reports and provide feedback. But even in the smallest organization, there must be at least one other person who can review your work. It’s not necessary for reviewers to have advanced financial skills; in fact, it’s a good idea to get feedback from a more “general” audience to make sure that the financial reports are clear and easy to understand.
Financial reports are an essential tool for nonprofit organizations. Accurate and meaningful data will allow you to confidently plan for the future and assess the financial strength of your organization.