Accounting – Page 4 – Beck & Company

Nonprofit Accounting: The Elements of an Effective Financial Report

As we discussed last week, nonprofit organizations are required to present financial information to their board on a regular basis (usually monthly). Clear and effective financial reporting to the board of directors is necessary for good financial management and accountability; however, many organizations do not understand the elements that make up an effective financial report. The information within your financial reports should be relevant, understandable, reliable, and useful. If your reports are not these things, it’s time to sit down and revisit your nonprofit’s financial reporting methods.

Take a closer look at the four characteristics of effective financial reports and see for yourself if your reports are making the cut:

The information contained in your financial reports must be relevant.
The finance committee and board of directors will determine what information is needed to monitor the organization’s financial progress. Your reports should include the financial position of your organization (assets and liabilities), key statistical data to help board members determine the financial outlook of the organization, and a summary of operations (revenue received and expenses incurred). At a minimum, your financial reports should contain the following:
- Salary and benefits expenses
- Food costs (if substantial)
- Revenue from grants, fees, etc.
- Month-end summary of significant assets, including accounts receivable, accounts payable, grants not yet paid out, and cash

It would also be useful to present a comparison of your actuals versus the budgeted results. These comparisons aid the board in determining whether or not financial policies are being followed and if action needs to be taken. This analysis is most useful when provided with detailed notes explaining any significant variances.

The board must understand the information being presented in the report.
Your financial reports need to be easily read by all of your board members, so make sure they are understandable. Remember, the members of your board have varying levels of financial experience so don’t inundate them with unnecessary information. Find out what they prefer and deliver it. Some boards want a detailed account while others prefer a one page summary. Determine your strategy for creating the reports your board wants and stick with it.
The financial information must be reliable and accurate.
Financial reports are only useful if they are reliable. Double check your data to ensure its accuracy and reconcile your bank statements to your accounting records on a monthly basis.
The information contained in your reports must be timely.
Delivering effective financial reports is all about the timing. Reporting the results of your operations and financial position in a timely manner is crucial if the board wishes to take corrective action.

Overall, creating effective financial reports for your board is not difficult. It just takes a lot of time and attention to detail. By properly maintaining your accounting records throughout the month, you can ensure that the information in your reports is reliable and accurate. Contact us today if you need help maintaining or cleaning up your accounting records. We offer a variety of accounting services designed to help you succeed in your financial reporting efforts.

Is it Time to Hire an Accountant for My Business or Nonprofit Organization?

Running a business or not-for-profit organization is hard work. Not only do you have to effectively manage the day-to-day operation, but you also have to effectively manage and maintain your business and organization’s finances (which is no small feat). Many businesses and not-for-profits choose to handle their finances on their own in an effort to save money; however, the stress of managing these financial responsibilities on their own often leads to frustration and unintentional errors.

Businesses and not-for-profit organizations are not always aware of federal regulations and changing laws, and managing their finances on their own can become cumbersome as they have to commit more time to researching ever-evolving accounting regulations to maintain full compliance. Hiring an accountant or CPA would be beneficial in this aspect, as they have full knowledge of business and not-for-profit accounting regulations. Whether you decide to hire someone full-time or part-time, the help of a CPA can ease your business stress (at least where your accounting and finances are concerned).

If you are unable to keep up with the financial demands required of running your business or not-for-profit, it may be time to hire an accountant. If your answer to any of the following questions is “yes”, it’s time to actively look for a CPA or accountant to handle your finances:

Are you deciding on a business entity or trying to determine 501(c)(3) status?
Do you need help with your taxes?
Could you use some help with your financial reporting?
Are you being audited?
Do you need help differentiating between business and personal expenses for tax purposes?
Are you having a hard time comprehending your financial statements?
Do you need help determining which expenses are tax deductible?
Do you need advice about large purchases, such as buying or leasing a property for business use?

An accountant or CPA is qualified to help in the areas listed above. Whether you need help filing your taxes, determining an entity or not-for-profit status, or creating financial reports, an accountant is a wise investment. If your business or not-for-profit organization is searching for a CPA, give us a call today at (703) 834-0776. Our team of accountants and CPAs are more than qualified to help you with both your small and large accounting tasks.

Want to learn more about our client accounting services? Visit our Accounting Services page to learn how our experienced CPA’s can help you make sense of your company’s or nonprofit’s financials.

Keys to Effective Financial Reporting: Setting Internal Controls

Since the passing of the Sarbanes-Oxley Act of 2002, businesses and corporations have had to reevaluate their financial reporting processes and procedures to comply with more restrictive federal laws. In an effort to protect businesses and organizations against costly errors and fraud, the government is cracking down on financial reporting and the storage of electronic financial documents. Business accounting software can only get you so far. While the software is certainly helpful in tracking and auditing your financial transactions, you need to develop sound internal controls to establish the required “separation of duties” (or “checks and balances system”). Financial responsibilities should be separated within a business or organization, and there should be policies implemented that discourage one person to have complete custody over the financial decision-making and review process.

Setting internal controls ensures compliance with Sarbanes-Oxley and protects the financial integrity of your company or organization. Below are several tips designed to help you set effective internal controls and increase the effectiveness of your financial reporting:

Do not let the person (or persons) managing your company’s bookkeeping functions handle cash.
Reconcile bank statements on a monthly (30-day) basis. Make sure this is done by someone who is not responsible for bookkeeping, cashiering, or depositing. When complete, these bank reconciliations should be reviewed by supervisors for accuracy and completeness. Make sure both the reviewer and preparer signs off on each monthly reconciliation so you can track who reviewed it.
Do not allow employees who handle cash have access to accounting records.
Reconcile all receipts with deposits made into the company account to verify that all collections are accounted for in the system (and bank). This task should be performed by someone who is not responsible for making the purchases or deposits.
All cash disbursements need to be approved by an employee who is not involved in the check preparation, bookkeeping or bank reconciliation process.
Checks need to be written and/or printed by someone who is not responsible for disbursement approvals, check distribution, or maintaining the company’s accounts payable ledger.
As soon as checks or cash is received, a receipt of payment needs to be prepared; all checks need to be endorsed immediately upon receipt.
The frequency of the deposits into your company or organization’s bank account should be determined by the volume of funds you receive. If your receipts total more than $500 (or a reasonable amount for your organization), they should to be deposited within a day. For amounts under the threshold, the funds can be properly secured in your office for a week or until the amount reaches the threshold.
Require two signatures on all checks for cash disbursements, and make sure at least one of the signers is not responsible for any cash receipt or disbursement functions.
Mark all paid documents (invoices, receipts, purchase orders, etc.) “PAID”, and write the check number and payment date on each document. This will ensure integrity and help you track when you paid what outside of your accounting system.

Setting internal controls is important to your company’s reputation. It can help ensure financial integrity, as well as help you create more effective (and accurate) financial reports. Stay tuned to our blog for more effective financial reporting tips.

Do you need help setting internal controls? Are you looking for ways to improve your accounting processes? Learn more about our accounting services – we’d love to help you get on the right track!

Bookkeeping and Accounting Tips for Business Owners

A business owner’s job is never ending. In addition to ensuring that the business is running smoothly and meeting customer expectations, business owners are also required to keep track of important data and information that is crucial to the business’ operation. Many business owners prefer to do the “bookkeeping” in their heads, a method that – while proven sufficient – is not highly recommended. As federal laws and regulations become more stringent, business owners are seeing a need to reevaluate their current processes and move their bookkeeping to a more reliable system.

If your business does not have a financial system and specific processes in place to account for your company’s financial situation, it’s time to invest in a new bookkeeping and accounting system and processes. This will help you gain a better handle over your company’s financial situation, help you better meet your business goals, and maybe even increase your profit.

We’ve created a few crucial bookkeeping and accounting tips to help business owners just like you prepare their company for financial success. Keep the following tips in mind as you reevaluate your company’s bookkeeping and accounting processes and procedures:

Track your expenses.
This may seem obvious, but you’d be surprised how many business owners skip this crucial step. Tracking your expenses is extremely important, otherwise you may miss crucial tax write-offs or put your business at risk during an audit. Many business owners track their expenses by using a single credit card for the business only. Once the credit card statements come in, they enter the information into the bookkeeping and accounting system to they can keep track of all their purchases throughout the year.Business owners should also write down business trips, lunch meetings, and other events that require a company pay-out or reimbursement in their day planner (or phone). This habit, while hard to establish at first, will ensure that you have all of the information you need for your tax records in the case of an audit.
Plan for any major expenses.
Take a look at your business goals for the next five years and plan out any potential expenses you see on the horizon. If your company is expecting to upgrade its computer software a year from now, go ahead and put it on the calendar (as well as in your budget). This will give you adequate time to prepare for the upgrade, both financially and operationally.
Record your deposits accurately.
Implement a system that is designed to keep your financial information straight. You can record your deposits in a variety of systems, such as Excel, Quickbooks, Peachtree, or Sage accounting software. Business owners make a variety of deposits into their bank accounts every month; therefore, it is crucial to keep meticulous records so you don’t accidently report on income you don’t actually have.
Put your tax money aside.
We cannot stress this point enough. Putting money aside for your taxes as you generate income is extremely important as you can be penalized for not filing and paying quarterly taxes on-time. By automatically setting aside money throughout the year, you will be more than prepared to pay your quarterly taxes on-time, every time.
Watch your invoices.
You cannot do it all. Assign someone within your company to track your billing process, for late or unpaid bills will only serve to damage your cash flow. Once you have set up someone to keep track of your company’s invoices, establish a process for follow-up. This can either be in the form of a second invoice, phone call, or letter stating that the client will be billed an additional fee if the invoice remains unpaid. Just because you’ve sent out the invoices does not mean the billing process is over; it has, in fact, just begun.

Stay tuned to our blog for more bookkeeping and accounting tips. If you are a business owner and would like some help developing new bookkeeping and accounting processes, give us a call today at (703) 834-0776. We would be more than happy to help you find the best way to keep track of your company’s finances.

Why It is Necessary for Small Businesses to Maintain Accurate Financial Records

Why do some small businesses fail in the first five years of business? While the slow economy can be to blame for some of the failed businesses, mismanaged finances is the largest culprit. Keeping an accurate record of your company’s finances is crucial to not only understanding your company’s financial demands, but also to staying in business for years to come. Accurately recorded books also provide small businesses with current, up-to-date financial information, giving them insight into the company’s current situation and enabling them to make informed financial decisions for the company’s future.

Why is Bookkeeping So Important to My Business?
First of all, if a company wishes to seek out potential buyers or funders in the future, it is important to maintain and uphold accurate financial records. When investors and lenders express interest in a company, they will want to examine clear and well-kept books in order to gain an accurate assessment of the business.

Proper bookkeeping, in addition to preventing costly audits, builds the business’ framework by outlining its strengths and weaknesses. Without proper bookkeeping, a company’s quarterly reviews would be useless. These reviews help business leaders make accurate, informed decisions for the future of the company based on the information gleaned from their important financial documents. Without accurate financial records, business leaders would not be able to make decisions on the company’s growth or identify any problem-areas needing immediate attention. Basically, if a company wishes to grow and succeed, it needs to have immediate access to important financial information.

Identity theft and other threats have also increased the importance of accurate bookkeeping. If a company has a well-maintained set of books, identity theft or a simple error will stick out like a sore thumb. If a company’s books are not properly maintained, it will be easier for identity theft and errors to slip under the cracks and cause extensive amounts of damage.

Maintaining good bookkeeping practices is not hard; it just requires a little time and attention. Find out how to clean up your records with these bookkeeping basics designed for small businesses.

Mid-Year Checklist for Small Business Financial Planning

Running a small business requires a lot of planning and effort. While many small businesses focus their attention on the year-end, it is just as important to revisit your company’s financial plan mid-year. Financial planning is an ongoing process for small business owners and taking action now can help you prepare for future success.

Keep the following checklist in mind as you prepare to go over your company’s financial plans this summer:

1. Meet with a tax consultant.

Many small businesses make the mistake of waiting until tax time to begin thinking about their taxes. By then, it is too late to take action and reduce your tax payments. By meeting with a tax consultant earlier in the year, you will have plenty of time to go over your company’s financials and discuss your best options. More importantly, you will still have time to act on your tax consultant’s suggestions for the year.

2. Assess your estimated tax payments for the year prior.

Now that you’ve hit the mid-way point for the year, it is time to assess your estimated tax payments for the rest of the year. Review your business’ year to date financial earnings and forecast your earnings for the rest of the year. Once you have totaled your small business’ estimated earnings for the year, assess your estimated tax payments to avoid any underpayment penalties. Make sure you adjust your final two estimated tax payments as needed.

3. Re-evaluate your business entity.

Mid-year is the perfect time to re-evaluate your small business entity. Many small businesses start out as partnerships or sole proprietorships only to transition to another entity further down the road. If your small business is not incorporated, you may want to consider incorporating it (as a C Corp, S Corp, or LLC) to possibly save money on taxes and protect your company from some financial risk. Some companies are formed with one entity target in mind and may need to reassess the entity for a different revenue level. Whatever your situation, make sure that you adjust your entity before it’s too late. Failure to adjust your entity due to revenue can be a costly error.

Make sure you discuss your situation with your tax consultant prior to making any decisions. He or she will guide you through the process, determine the right entity for your situation, and let you know when to change it.

4. Assess your company’s recordkeeping process.

In order to run effectively and efficiently, your business needs to keep up accurate records. If your business could use some help in the recordkeeping department, mid-year is the perfect time to assess your current processes and procedures. If you have not been keeping track of your business expenses, now is the perfect time to catch up. If your employees are struggling to accomplish certain administrative tasks, look for an alternative solution (such as outsourcing, investing in a technology solution to accomplish the job more effectively, or dedicating a set amount of time each week to that specific task).

It may seem like a lot of work now, but you will be grateful for the updated books come tax-time.

As you can see, there are plenty of tasks your small business can perform mid-year to get ready for tax-time. Plan for any equipment maintenance that needs to be done on equipment still under warranty. Re-evaluate your small business budget for the year and redistribute expenses as needed. Do everything you can to ensure that your company’s financials are in tip-top shape come tax-time. While it may seem like you just filed your return for this year, it is never too early to start preparing for the next tax year.

Improve Efficiency by Creating an Effective Budget

Improving your small business’ efficiency involves more than simply changing a few processes and procedures; it involves knowing the ins and outs of your company and being able to account for every dollar that passes through your business. While budgeting may not be the first thing that comes to mind when you think about ways to improve your company’s efficiency, an effective budget can save you a substantial amount time and money, allowing you to focus on the areas of your business that need further improvement.

Most small businesses already have budgets in place; however, many companies are failing to take full advantage of the budgeting process. An effective budget is a life-saver for the small business, especially in uncertain financial times. An effective budget will gauge the health of your business, help you plan for future expenses and needs (such as the hiring of a new employee, new hardware or a new office space), and provide you with the necessary tools to help your company grow.

Consider the following basic budgeting tips below to learn how to transform your budget and improve the overall efficiency of your business:

1. Keep Your Accounting Records Updated

Think of your accounting system as the answer to all of your problems? Want to find out how your company faired last year? Pull a report. Need to know the amount of money you are spending on that new project? Pull a report. Do you need access to this year’s projections in order to plan out the year effectively? Pull a report.

Your accounting system contains a wealth of information designed to help you run your business smoothly and efficiently. Start by running historical reports that will show you the breakdown of your monthly and yearly costs. Use these reports to compare this year to last and get an idea of where your business is spending its money.

Make sure that you pull a break down report every month and any other necessary accounting data you may need for forecasting. This will help you gain a better idea of where your business is financially, not only month-to-month, but year-to-year.

2. Set Business Goals and Develop Realistic Strategies for Reaching These Goals

The purpose of a budget is two-fold: to gauge the financial health of a business and to help that business accomplish its goals (financial and otherwise). What are your future business goals? Prior to creating your budget, sit down with key members of your staff and discuss your company’s future. Ask yourself these questions to get a start on developing your goals: What are your sales goals for the year? What costs can be eliminated and what costs are crucial to meeting those goals? What will our marketing strategies look like each month? What is our profitability goal for the upcoming year? How can we realistically meet that goal?

In order to reach the goals your company set forth, you will need to develop realistic and quantifiable strategies. These are realistic goals that can be measured. Instead of saying “I want to increase sales this year”, set a more realistic goal, such as increasing sales by 5% in the first quarter of the year. This will help you not only create more realistic – therefore, attainable – goals, but it will also help you plan more effectively.

3. Incorporate Your Goals into Your Forecasts

Now that you have defined your goals, incorporate them into your new monthly forecast. These forecasts are based on past accounting data and future goals. Remember to adjust your initial forecast based on any irregularities of the past year. For example, if you had a slow June last year, consider revising your baseline to account for June’s irregularity.

4. Compare Your Actual Results to Your Projections Each Month

Once you have created a new forecast for each month of the year, develop a template that allows you to track the actual numbers as compared to those forecasted. Calculate the difference and percentage of variance between what you forecasted and the actual numbers for that month. This will give you a better understanding of your company’s performance, and will help you create more realistic forecasts for the months to come.

Make sure that you review your actual totals vs. your future forecasted totals each month in order to stay on track to meet your initial goals. This will allow you to make immediate and necessary adjustments in order to reach your goals.

5. Identify and Re-evaluate Cost Areas in Your Budget

After you have evaluated your company’s current financial standings and projections, you need to sit down and review the cost areas as compared to the total costs being spent. Are there areas that could use improvement? Are there cost areas that could be eliminated? Ask yourself these questions as you evaluate every area of your budget. Eliminate any unnecessary costs and adjust spending according to your budgeting goals.

As you review your various costs, re-evaluate your suppliers and service providers to ensure that you are getting the best deal possible. Ask around, and get an idea of the average price for that service. If you feel that you are being taken advantage of, look elsewhere.

For more information about creating an initial budget, read our article, “5 Tips for Effective Budgeting”.

Effective Budgeting Practices for Nonprofit Organizations

In order to create an effective budget, nonprofit organizations must establish an effective budget process. An effective process engages those responsible for adhering to and implementing the objectives created in the budget, including the financial committee and senior staff. Organizations must establish a budget timeline, leaving plenty of time for the research, review, feedback and revision of the budget. The yearly budgeting process should be thoroughly documented and clearly state the tasks, responsibility assignments and deadlines needed to create the budget. An effective process also incorporates strategic planning initiatives and requires that income be budgeted before expenses.

Once the budget has been reviewed and revised by the necessary people, it will be presented to the organization’s board. Prior to submitting it to the board, organizations need to take the following into consideration when creating a budget:

Budget Income First. Make sure that you base your income targets on realistic expectations and only include income in the budget if it is reliable. Never include an income projection to fill the gaps of expenses. This is not realistic and sets your organization up for a budget deficit before the year even begins.
Keep Expenses Lower than Income. This may seem obvious, but it is crucial when creating an effective budget. Make sure that your expenses are always lower than the total dependable income.
Analyze and Understand Your Revenue. Does your organization depend on a single source of revenue? In some cases, the lack of diversity in revenue sources can threaten the financial stability of an organization should the sole revenue source become unavailable. There is no “right” list of revenue sources, so in order to find the right sources, you will need to analyze your organization’s circumstances, mission and industry and find a good match for your organization.
Make Sure Your Budget Supports Your Mission. Before you even begin to develop your budget, you need to sit down and go over your organization’s mission and strategic plan. Make sure that all strategies that have an effect on the budget are included in the budget you create. Your budget is designed to communicate and support your organization’s mission through numbers, so make sure that your allocation of funds coincides with the mission of your nonprofit.
Budget for Capital. The budget should take an organization’s annual operating income and expenses into account, as well as ensure resources for long-lived or non-operational needs (the capital budget). The capital budget could cover several years and should include target amounts and fundraising strategies to achieve the organization’s financial and strategic goals.
Make Notes to Explain Budget Assumptions. Board and committee members will appreciate any explanations you offer to help them understanding the underlying thoughts behind the numbers in the budget. While it is best to present budgets in spreadsheet format (which does not allow for much note-taking room), you can provide the board with narrative notes in a separate document. Whether or not the notes are in a separate document, make sure that you add a key that associates each note to the related line on the spreadsheet.

As you can see, developing an effective budget takes a lot of hard work and determination. While it may not be an easy process, your organization will benefit greatly from the work you put into your budget. By maintaining an inclusive budget and well-documented policies, an organization can carry out its mission thoroughly and effectively. If you have any questions about creating your budget, please contact us today.

For more tips on creating effective budgets, read our article “Five Tips for Effective Budgeting”.

Effective Financial Reporting Solutions Improve Nonprofit Transparency

Is your organization doing all it can to keep your donors’ and supporters’ trust? Are you using a financial reporting solution to produce transparent and accurate reports? If you plan to continue carrying out your mission for years to come, you need to do all you can to keep the trust of your supporters and an effective financial reporting solution can help you do just that.

Nonprofit organizations are facing increasing government regulations each passing year. Restrictions around the use of government grants are continuing to increase and private funders are now asking for specific measurable outcomes resulting from grant awards. With the recent proposed rule changes to A-133 and Form 990, nonprofits will be required provided extensive reports on all federal and private funding.

Being accountable in all aspects of your organization’s financial and program management has always been important; however, with the recent regulations, it is more crucial than ever to develop effective financial reports.

An organization’s accountability does not fall solely on the CFO or Executive Director; it is also the responsibility of all staff and board members who are involved in the financial management, fundraising and program planning aspects of the organization. Keep the following tips will help you maintain accountability among your supporters and funders:

Make sure that you are using raised funds only for the purposes you outlined in your solicitations. Keep your donors updated on how you are using their donated funds and send out communication on a regular basis. This can be as simple as sharing a success story in your organization’s newsletter or making your annual report available on your organization’s website, or as complex as reporting on fulfilling grant restrictions, program outcomes and the impact donated funds have had on your organization. However, at the end of the day, funders need tangible proof, such as clear tracking of donor restrictions and funds spent, in order to keep their trust in your organization.
Keep the lines of communication open. Ensuring accountability means allowing your supporters to communicate with you through the good times and the bad. Grant-makers and donors desire open communication, especially when things do not go as planned. Funders are not looking for justification to take the grant away; they just want to know what the roadblocks are and how they can help organizations overcome them.
Don’t let your actions come back to haunt you. Remember that donors and members of the grant-making community network and talk. While your actions and communications can reinforce their decisions to fund you and gather support from other funders, they can also be a deterrent. When your organization becomes tainted in the mind of your donors, you can expect to never receive funding from that donor again. So let your actions speak for the good you do.
Maintain an effective financial reporting solution to meet your financial needs. Part of being accountable means having the right infrastructure in place to assist with the necessary reporting, tracking and communications. Audits come yearly, and your organization must be prepared to provide key stakeholders, grantors and auditors with a clear trail to verify the financial accuracy of your reports. Make sure that your financial reporting solution not only tracks and reports outcome measures on financial statements, but that it can also be used to budget outcome measurements for more accurate forecasting. Information on outcome measures can be factored into the financial data and presented to the necessary constituents. An effective financial reporting solution will give your donors and grantors a clear picture of your organization, outline your intentions and ensure that your supporters see the accountability of your financial data.

A financial reporting solution can also helps organizations manage donor information. An effective system helps nonprofits acknowledge donations in a timely manner, keep record of all communication histories, maintain profiles on all donors, create follow-up reminders and personalize communications with your organization’s programs and projects.

While effective financial reporting software can help keep your organization accountable and transparent, at the end of the day, it is the people in your organization that use these tools to demonstrate transparency, accountability and financial accuracy. Contact us for more information about maintaining financial transparency.

How to Prevent the Most Common Issues in Nonprofit Audits

Nonprofit organizations are as unique as their for-profit counterparts and while they have key organizational differences, auditors have noticed three common issues when performing nonprofit audits: insufficient staffing, weak internal communications and insufficient application of internal controls. These issues not only affect the reliability of the financial information provided by the organization, but they also create an environment for potential fraudulent activity. Consider the following issues that arise out of nonprofit audits and how nonprofits can prevent these issues:

Insufficient Staffing
An accounting department that is insufficiently staffed could mean that the financial information reported by the nonprofit is unreliable. As nonprofits continue to cut costs, individual employees are taking on too many roles, resulting in more reporting and data-entry errors. Because employees may not have the necessary time needed to complete a task carefully, errors may be over-looked or require many time-consuming corrections.

Insufficient staffing can also put an organization at risk for internal fraud. The limited number of accounting staff requires individuals to take on multiple roles within the organization, leading to an improper segregation of duties. The proper segregation of duties is a key in fraud prevention. The authorization of transactions, custody of assets and record-keeping functions must be separated in order to ensure that fraudulent activity does not occur.

Nonprofit organizations need to analyze their individual situations regarding the lack of staffing in their accounting departments. If the accounting staff is burdened by their responsibilities, it may be necessary to hire an additional employee (or two) to take on some of the responsibility. If an organization is short on funds, part-time help may also be considered to alleviate the burden on the accounting staff.

Weak Internal Communications
Weak or insufficient internal communications can damage an organization’s reliability, especially when the accounting department fails to receive updates on individual transactions. Communication breakdowns within an organization can increase the potential for unaccounted for transactions and non-compliance with government regulations.

Communication breakdowns can also affect an organization’s standing with granters. If the accounting staff is not aware of specific grant restrictions and requirements, the nonprofit may jeopardize its ability to obtain grants. If the organization is closely scrutinized by regulatory agencies and its financial records are found to be deficient, future grants may be at risk. Ensure that your organization remains in good standing with your granters by implementing strong internal communications within your organization.

Nonprofits with weak internal communications have an increased potential for fraudulent activity. If the accounting department is not informed of an organization’s various activities, questionable transactions may not be identified.

Nonprofits can overcome the risks associated with poor communication by ensuring that the accounting department receives copies of every contract and agreement, is notified of all oral transactions and is informed about the circumstance of all transactions. Nonprofits can also improve communication efforts by setting up frequent meetings between key accounting personnel, management and their auditors to ensure that everyone is on the same page regarding the organization’s activities.

Insufficient Internal Controls
An organization’s internal controls represent the policies and procedures established to ensure that management directives are carried out. When those policies and procedures are overridden or ignored, internal control problems result. Inadequate policies and procedures can also result in potential financial problems that may not be identified until the audit. In order to prevent any potential financial problems, nonprofits need to conduct reviews of budgets, forecasts and prior periods on a regular basis.

Nonprofit organizations need to examine their internal control structure in order to identify weaknesses and financial overseers should verify the financial information reported to them on a regular basis. As auditors discover weaknesses in an organization’s internal controls, they should focus on expanding audit testing in order to compensate for the lack of controls and offer the organization suggestions for improvement.

As auditors and nonprofits work together, they can reduce the risk of these issues and ensure that organizations are prepared for an upcoming audit. For more information about preparing your organization for an audit, click here.