Nonprofit Accounting: Reporting the Right Way
In any type of business, accurate reporting is essential for both internal and external purposes. And nonprofit accounting is certainly no exception. The typical nonprofit fiscal office needs to produce and distribute information to a variety of people for a variety of purposes.
There has to be detailed financial reports for all programs within the organization for the fiscal department to be able to perform the required “detective work” to help insure the integrity of the system in place. There also has to be program specific reporting capabilities to provide to program managers/directors. Program staff do not need to be finance people nor even understand the intricate nature of a chart of accounts. But you need to provide them with the detail necessary to help finance staff identify possible problems such as miss-coding.
is not an accountant but you need to give them an overview of your organization’s activities and financial health with enough detail to allow them to perform their duties, but not so much as to be overwhelming. And the funding source will of course supply you with a specific reporting format to be met.Let’s assume now that you have an accounting and financial management system in place that can meet all of these expectations.
One major hurdle that the typical nonprofit agency needs to deal with on a daily basis is budget constraints. The grants and contracts that fund non-profit organizations are very well defined with finite amounts that you will receive. When a particular line item’s cumulative expenditures reach the budgeted amount, we unfortunately see the practice of coding subsequent expenditures to a program “that has the money”! That may make your budget comparative nice and clean but you now have multiple financial reports that are providing you with inaccurate information. One programs actual costs are understated and another programs are overstated due to the “creative coding”. The more acceptable practice is to code the expenditure to the program in which it was incurred and move discretionary funds over to that program to cover the costs. This will give you an accurate representation of the costs of providing the services.
Bottom line is that when you run out of money in a particular line item for a program it is NOT an accounting problem, it is a budgeting problem. Don’t let the temptation of avoiding an over-expenditure cause you to code a transaction that will create a misrepresentation on your financial reports. The end result of this practice will be you supplying inaccurate financial reports to all recipients identified above.
