Best Practices for Managing Nonprofit Bookkeeping Staff

Effective bookkeeping is the backbone of any successful organization. It provides financial clarity and accountability for your financial decisions and helps you to stay compliant with financial reporting requirements. For nonprofits, the stakes are particularly high since they must report back to grantors (many of whom are government agencies) to remain eligible for continued funding.

In other words, to continue receiving funding — especially if those funds are taxpayer dollars — you need to demonstrate good stewardship through responsible spending, thorough documentation, rigorous internal controls and a sophisticated approach to managing your accounting team. A competent accounting team ensures your financial records accurately account for every dollar that passes through your organization and shows donors and grantors that they can trust you with their money.

Accurate bookkeeping is also the foundation of all other accounting activities. Additionally, it enables nonprofit leaders to make informed decisions based on reliable financial data. In short, when bookkeeping is well-managed, program directors can concentrate on their core mission without worrying about financial mismanagement.

Common Mistakes in Nonprofit Bookkeeping

Solid bookkeeping is essential, but it does require resources — something many nonprofits struggle to provide. With limited budget and staff, nonprofits might fall victim to these common pitfalls:

Lack of Internal Controls and Segregation of Duties

Smaller organizations often struggle with internal controls due to limited staff, leading to one person handling multiple roles. This lack of segregation of duties can have adverse consequences, from innocent errors to potential fraud.

For example, if the same individual is responsible for both paying invoices and reconciling bank statements, the risk of financial discrepancies is increased.

Separating financial responsibilities between different people means both individuals can approach their roles with objectivity. This helps to ensure accuracy and accountability. However, if a nonprofit lacks the funding to recruit enough in-house bookkeepers, outsourcing to an experienced nonprofit CPA firm like James Moore may be a more accessible way to extend accounting resources and shore up internal controls.

Insufficient Expertise in Nonprofit Accounting

Nonprofits must comply with unique compliance and accountability requirements compared to other types of organizations. However, many organizations operate with lean staff due to limited resources. And that smaller staff may not have the necessary expertise to navigate grant rules and Uniform Guidance.

Uniform Guidance is a set of rules and regulations on federal awards given to non-federal entities, including nonprofits. To stay in compliance with these regulations, it is crucial that nonprofits have staff on hand that thoroughly understand them.

For example, a bookkeeper may have solid accounting skills but may not be familiar with the specific regulations governing nonprofit funding. As a result, they may not be best positioned to identify potential compliance issues.

If an organization doesn’t have the resources to recruit full-time staff with in-depth compliance expertise, outsourced accounting with experience in the nonprofit sector — for example, James Moore’s nonprofit CPAs or fractional leadership — may be a helpful alternative. This would grant the nonprofit access to the necessary insights without the expenditure of hiring and training new staff.

Timeliness Issues

Understaffing and budget constraints, issues that many nonprofits face, may also lead to delays in financial reporting. This can result in outdated financial information being presented to boards and management teams, hindering effective decision-making.

If your organization is struggling with timeliness in financial reporting, there are a few ways you could go about resolving it. If you have the resources, establishing stronger internal controls and thoroughly documenting accounting procedures can help to prevent such errors. If the issue stems from a lack of staff or resources, automation or outsourced accounting services may help.

Best Practices for Nonprofit Bookkeeping

To avoid common mistakes and enhance financial management, nonprofits should adopt the following best practices:

Work with Qualified Personnel

If you want to manage your bookkeeping effectively, you need qualified staff with expertise in nonprofit accounting. Continuous training and development ensure that staff stay updated on best practices and compliance requirements. Investing in qualified staff pays off in the long run by reducing errors and enhancing financial management.

Consider providing regular training sessions or workshops on topics such as grant management, Uniform Guidance compliance and nonprofit-specific accounting standards.

With that said, recruiting new accounting staff requires time and resources. So another option is to partner with an accounting firm like James Moore that brings nonprofit expertise. Outsourcing can increase your internal accounting team’s resources without requiring the expense of recruiting and training full time staff.

Did you know? At James Moore, we host an annual Nonprofit CPE series. This year’s four-week series of webinars kicked off on September 4: Watch the recordings now!

Use Appropriate Software

Reliable accounting software makes it easier to maintain accurate records and generate useful financial reports. Some accounting programs, like QuickBooks, offer nonprofit-specific versions, including features like fund accounting, grant tracking and customized reporting for Form 990 preparation.

With that said, software alone is not enough. Proper setup and optimization of the software are crucial, and nonprofits should ensure their software is configured to meet their specific requirements. Staff must also be thoroughly trained to ensure they’re using your software platforms correctly and consistently.

Segregation of Duties

Establishing clear roles and responsibilities prevents errors and fraud. Implementing internal controls and regular reviews ensures accuracy and accountability. No single individual should handle all aspects of financial management, from transaction recording to reconciliation.

For smaller nonprofits with limited staff, consider involving board members in financial oversight or rotating responsibilities among staff members.

For larger organizations, create a financial oversight committee that reviews financial reports regularly to ensure compliance and accuracy.

Documentation and Internal Controls

Clear and well-documented processes help nonprofits establish smooth operations and compliance. When staff members have access to comprehensive documentation, new team members can quickly learn and follow established procedures, reducing the disruptions that often come with staff turnover. Additionally, conducting internal reviews before finalizing financial reports can improve accuracy and build trust with stakeholders.

Consider creating a centralized repository to document all financial policies and procedures. This resource should be easily accessible to everyone involved in financial management so all staff can quickly find the information they need. By emphasizing strong documentation and internal controls, nonprofits can create a more efficient and transparent financial environment, ultimately supporting their mission more effectively.

Create Scalable and Repeatable Processes

Developing standard operating procedures (SOPs) is key to ensuring consistency and efficiency in nonprofit operations. These SOPs should be clear, concise and regularly updated to reflect changes within the organization. Scalable processes enable the organization to grow and adapt as it evolves so operations remain smooth, even as demands increase.

To ensure your SOPs are effective, make them easily accessible to all relevant staff. Encourage team members to contribute to the development and refinement of these procedures; their day-to-day experiences can provide valuable insights.

Use Technology and Automation

Using technology and automation can significantly enhance your nonprofit accounting’s efficiency and accuracy. Tools like BILL automate accounts payable processes, streamlining invoice processing, approval workflows and payment execution. This reduces manual data entry and minimizes the risk of errors, allowing your team to focus on more strategic tasks.

Automation helps reduce your team’s manual workload and improves overall efficiency. Nonprofits can also benefit from cloud-based accounting systems that provide real-time access to financial data, facilitating quicker and more informed decision-making. These tools not only support improved transparency but also streamline collaboration among team members across different locations.

Open Communication and Accountability

Open communication and accountability are crucial for effective teamwork within a nonprofit organization. Discussing challenges and providing consistent feedback helps create a supportive atmosphere where staff members feel valued and heard. Developmental coaching can also promote accountability and help team members grow in alignment with your nonprofit’s goals.

For example, implementing a mentorship program within the finance team can promote knowledge sharing and professional growth, allowing less experienced staff to learn from seasoned professionals. This approach not only builds a stronger team but also enhances overall performance.

James Moore: Experienced Nonprofit CPAs

Effective bookkeeping and a strong accounting team enables nonprofits to maintain compliance, accountability and focus on their mission. By implementing these best practices, nonprofits can significantly improve their financial management and build trust among staff, donors and grantors.

James Moore provides comprehensive accounting solutions tailored to the unique needs of nonprofits. Our experienced team of nonprofit CPAs can help you enhance your bookkeeping practices, ensure accurate financial reporting and stay compliant with all regulations.

To learn more about how we can help you manage your nonprofit’s finances, contact us today.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.