You’ve made the decision to outsource your nonprofit organization’s accounting. Now what? How do you make the most out of your accounting engagement? The answer is simpler than you think.
Every successful engagement starts with good communication. To ensure a smooth transition and efficient service, you’ll need to communicate certain financial details to your accountant. But no need to be alarmed - you don’t need to be an expert on the technical jargon of the FASB (the Financial Accounting Standards Board, the governing body of accountancy). The language may be unfamiliar, but the concepts are easy to understand.
Below are some of the major financial details that should be shared with your accounting team on an ongoing basis.
Revenue
Funds Coming Into the Organization
Types of Funding
Communicate the different types of revenue that come into your organization. Some common funding sources for nonprofits include:
Grants
Donations, gifts, and bequests
Income from events
Contractual fees for services
This information will be used to ensure your chart of accounts is properly structured according to how your organization operates.
Supporting Documentation
When funds are received by your organization, send your accountant a copy of any documentation stating where the funds came from and any instructions/requirements on how the funds should be used. This documentation usually takes the form of bank statements, grant agreements, contracts, or reports from your customer resource management software (CRM or AMS).
Expected Revenue (Not Yet Received)
If your organization uses the accrual method of accounting, revenue can be recorded for a pending transaction. If there is an obligation or commitment of incoming funds, this should be communicated to your accounting team right away. This will help keep tabs on what is owed, and allow your organization to properly align budgeted revenue with actual performance.
You should also communicate the date(s) or timing of the expected revenue and your performance obligations. Understanding the performance timing helps your accountant to determine when a transaction should be coded and what revenue recognition rule should be applied.
Expenses
Funds Leaving the Organization
Purchases of Assets
If you purchase an item that will last longer than one year – like a computer or office furniture – it may need to be recorded as an asset. Purchases of most assets should be recorded on the Statement of Financial Position and depreciated over time. Assets can take many forms:
Tangible assets – Machinery, equipment, buildings, vehicles, furniture
Intangible assets – Patents, copyrights, computer software, website design
Spending Expectations (Outside of the General Course of Business)
Be sure to communicate any plans of purchasing anything outside of your organization’s normal operational expenses. Examples of these expenses are bonuses, unbudgeted projects/programs, or unbudgeted events.
Expense Classifications
Nonprofits are now required to categorize their expenses by the functional area or purpose. Communicating the purpose of each expense throughout the year allows for a smooth transition at year-end and helps to streamline the annual audit preparation. The typical functional expense categorizations are:
General and Administrative (G&A) – Typical operating expenses such as office supplies, human resources management, advertising costs, insurance, etc.
Fundraising – Expenses directly associated with fundraising efforts, like fundraising events, direct mail campaigns, or expenses related to donor support and connection.
Program – Expenses directly associated with your organization’s programs and projects.
While all of the above items should certainly be communicated to your accounting team, this list is not by any means all-inclusive. As a rule of thumb, if you are unsure if something should be communicated, just give your accountant a quick call to ask. Happy accounting!