8 Mistakes Nonprofits Make When It Comes to Accounting

As your organization grows, avoiding every single mistake — especially accounting errors — is an unreasonable goal. However, if you know what to look for, you can achieve a smooth and relatively problem-free nonprofit accounting process. 

Here are eight accounting-related mistakes that nonprofits tend to make and how to navigate them.

[Related: Using Association Sponsorship Packages To Generate Non-Dues Revenue]

1. Inconsistently Checking Balance Sheets and Bank Statements

If you don’t stay on top of your accounting records, you’re almost definitely going to run into mistakes. Fix this by consistently checking your nonprofit’s balance sheets and bank statements. 

Reviewing these statements regularly keeps you informed of transaction recipients and amounts. Then, you can fix any discrepancies as they appear instead of watching them take everyone by surprise during an audit or at the end of your fiscal year.

2. Recording Financial Data Incorrectly

One of the most common nonprofit accounting mistakes is incorrectly recording financial data. The accuracy of financial data records is critical, and data should match among all sources. While human error is unavoidable from time to time, you must quickly catch these kinds of errors and ensure a lack of education doesn’t cause them..

Nonprofit accounting mistakes usually occur during the transfer of data from one source to another. This is why integrated software and an experienced and effective bookkeeper can help your nonprofit immensely. These tools assist your organization in minimizing mistakes and catching errors before they cause serious problems. 

[Related: Investing Principles for Nonprofits]

3. Recording Transactions in the Wrong Period

In addition to recording financial data incorrectly, another common nonprofit accounting mistake is recording these transactions during the wrong period.

Depending on your organization’s accounting method, you’ll follow one of two strategies: 

  • Recognizing contributions as they’re received and expenses as paid (cash basis method) 
  • Recognizing contributions when promised and recognizing expenses in the period incurred (accrual basis method) 

Using integrated software is helpful when tracking these donor contributions and any related restrictions.

4. Not Reviewing Donor Restrictions

If you’re taking charge of your nonprofit’s financial health, all accounting personnel should have access to donor documents. Donor restrictions and regulations affect how your organization can use and record their donations, so it’s imperative to pay attention. 

You should record contributions as the donor advises, and you should record any amount your nonprofit doesn’t use within the year as a net asset.

5. Not Implementing Internal Controls

Another common nonprofit accounting mistake is not implementing necessary internal controls. Clear and concise internal controls guidelines that are accessible organization-wide are critical to keeping your nonprofit’s data and financials safe. 

It’s not a good look to simultaneously lose your donors’ trust and the money needed to keep your nonprofit running because of poor internal controls.

When creating your internal controls document, make sure you tick these boxes:

  • Write everything down. 
  • Give everyone access to the internal controls document.
  • Name the parties responsible for each procedure so there’s no confusion.

[Related: Putting the FUN in Financial Statements]

6. Inaccurately Reporting Services as In-Kind Contributions

While many nonprofits rely on volunteers’ services, it’s not always clear how to record these during the accounting process. Nonprofit regulations specify using fair market value when noting the recorded value of pro-bono services that nonprofits use. 

You should always record the value of services that other companies or individuals provide for specialized skills as an in-kind donation to the organization.

7. Not Having Professional IT Support

Not having professional IT support is a major nonprofit accounting mistake. Hiring professional IT support saves your nonprofit money in the long run. You won’t have to worry that temporary mistakes will turn into permanent problems and cost you time and money when regular staff can’t quickly solve them. 

IT support helps you move forward in your accounting duties with confidence. You know experts protect and securely host your nonprofit’s data, accounting software and other confidential information. 

Outsourcing to a respected and professional IT company, such as CMIT Solutions, is advantageous to your nonprofit. The IT company takes on technical details and issues so you can focus on payroll, tax consulting and client acquisition.

[Related: Why Work in Nonprofit Accounting?]

8. Hiring General Accounting Volunteers Instead of Specialists

Despite the volunteer-led structure of most nonprofits, managing a nonprofit organization’s finances is something that someone with experience in the field should do. 

A professional accounting group that specializes in nonprofits understands the differences between managing working capital for a for-profit business and for an exempt organization. These particularities include specific audit processes, different annual fiscal calendars, contribution and membership revenue monitoring, and of course, tax exemption. 

Handing your nonprofit accounting needs to a volunteer or a general accountant rather than a nonprofit specialist can be detrimental to your finances. Hire a nonprofit accounting specialist to handle the nuts and bolts, and rest easy knowing your organization’s finances are in reliable, experienced hands.

Partner with Jacobson Jarvis Today!

If you have any questions about not-for-profit accounting, common nonprofit accounting mistakes, or would like to schedule a consultation to see how we can help, contact Jacobson Jarvis today