Musings on the nonprofit accounting dilemma

I’ll admit that I have kind of a weird background. I am an accountant and I’ve spent half of my career working with small to mid-sized nonprofit organizations, both as the executive director and providing consulting services to nonprofits. My combination of accounting and business background with nonprofit leadership is unusual. I think that it has had a big impact on the organizations I’ve worked with and that nonprofit leaders and staff can benefit from learning more about their accounting and financial information. Let me explain.

My experience has been with nonprofits in various stages of their development - from founder-led startups to professionally-staffed mature organizations. However, even with the fully-staffed nonprofits, I seldom see a staff member that has training and experience in bookkeeping or accounting. Often the bookkeeping function is handled by admin staff, a board member or knowledgeable volunteer. That means that organizations often are able to grow their in-house expertise in the areas that support their mission and programs, but may not have grown that same level of expertise when it comes to their financial reporting and management.

So, most of the nonprofits I’ve worked with have done one of two things - they either have an outside firm take care of all of their financial information or they have a non-bookkeeper doing the data entry and an outside firm compiling the statement. In many cases, they also have an annual audit by a CPA.

I think this arrangement makes it very hard for nonprofit leaders to have the budget and financial information that is vital to running a healthy organization. Without timely, accurate financial information that can be easily compared to their board-approved budget, leaders have to rely too heavily on anecdotal information and instinct to make decisions.

Is there a solution to this dilemma? I think there is. I’ve watched the evolution of online and desktop accounting solutions over several decades and I believe that the ease of use and ubiquitous availability of these systems could be a turning point in allowing even the smallest organizations to handle their own in-house accounting functions. But, that will only work with an investment in time and training.

While the systems make it easy to handle the day-to-day transactions of just about any type of organization, without an understanding of basic bookkeeping theory and the overall functionality of the accounting system, it’s very difficult to go beyond the day-to-day and really dig into getting good statements on a timely basis.

Over the years, I’ve used several different solutions, and have come to respect QuickBooks Online (QBO) for a number of reasons.

• First and foremost, it is web-based, which means that it’s always available from just about anywhere. Even in the smallest organizations, there is a need for flexibility in accessing financial data from different locations by different people.
• Second, QBO has managed to keep it simple for the user while still maintaining the types of controls and audit trails that are important for all organizations, but even more so for the ones that are required to have their statements audited.
• Finally, QBO is incredibly flexible so it can handle just about any sort of tracking and reporting that an organization needs - with the caveat that when the system is setup or re-setup, it should be done with the help of someone who really understands both the organization’s needs and QBO’s capabilities.

So where does that bring us? Well, I believe that with some basic training, non-bookkeeping staff can track financial information and produce accurate, timely statements. I also think that most organizations are only using a small percentage of the capabilities of their accounting system and that by learning what the system can do, they could significantly improve their reporting, budget tracking, and financial management.

To that end, I’ve created an online course called BeanCounter.Solutions - a 10-module set of online lessons that cover everything from basic bookkeeping to setting up the chart of accounts, entering transactions, reporting, budgeting, and ends with how to work well with the auditors. The course will be available in early March. In the meantime, I’ve created a free guide - Six Nonprofit Bookkeeping Mistakes to Avoid. 

You can get your copy here, and I’ll keep you updated on when the course will be available.