Nonprofit bookkeeping requires understanding nonprofit unique accounting requirements. This post explores everyday, real-world questions bookkeepers encounter.
Editor’s Note: The following questions and answers represent real world challenges nonprofits encounter managing nonprofit accounting everyday tasks. Our advisor column is intended to provide basic advice on questions related to the topic. Answers to these questions are simply the view and opinion of our nonprofit accounting pros. Nonprofit Accounting Pro shall not be liable, answerable or accountable for any loss or damage resulting from the advice given by our advisor.
Changing Fiscal Year
Answer: If your primary funding sources have a 06/30 year end, it is advantageous to switch for fiscal year end to align with your funding sources. The only caveat to that switch is you will have to file year and reports for a 10 month period of September – June when you make the switch.
PPP Loans and Restricted Funds
Answer: The second round of the PPP loan would first be classified as a Liability until the loan is forgiven. It is not income, until it is forgiven. You must make sure you properly categorize your expenses incurred for salaries, rent and utilities as being PPP expenses for applying for loan forgiveness. Once the loan is forgiven, then it would be classified as unrestricted income.
The funds raised from the Coronavirus Impact Fund must be used for the designated purpose as outlined by the committee. If the funds raised are for general operations to supplement lost revenue because of COVID, then they can apply the revenue against program expenses.
Fixing Inefficient Check Deposit Procedure
Question: I am so frustrated with procedures we have for depositing checks. The CEO hoards the checks, then every week he enters each check, number, amount, GL code on an excel spreadsheet, gives it to the office manager to bring to the bank to deposit, then she gives it to me to enter into QB. It makes NO sense. CEO says we need to this for audit purposes, but using an excel spreadsheet?? Why?? It’s not a true backup when everything should tie out to QB, NOT EXCEL. And this separation of duties things leads to so many f-ups. Like donors payments not being recorded properly and we look like idiots asking for proof of payment. I just don’t understand why this basic bookkeeping procedure is done by 3 people.
Similar issues with bills. CEO hoards the bills so I can’t even enter them into AP. He checks each bill to see if we’ve made any Payments and circles what he wants me to pay. I just don’t get it, I’ve been doing AP for 20 years. I know how to check to make sure we’re not making overpayments.
Answer: There is no easy solution to your problem, since the problem is the CEO. His procedures are not because of internal controls, it is more of his wanting personal control. I would suggest writing up proper internal control procedures for processing cash receipts and vendor invoices and try to diplomatically approach the CEO to try to implement these procedures. It would also help if you had an independent, outside auditor back you up on your concerns.
Cash Accrual: Accounts Receivable vs Pledges Receivable
Question: I’m really confused. This nonprofit works on a cash basis but lately there have been a few times that I have to enter in invoices. I just noticed that half of them went in AR and half went in Pledges Receivable. Why would this happen (as opposed to just one or the other)? When I create the invoice I just enter the service item which eventually links to the right income account. Where is this “middle man” account chosen? Thanks! we’ve made any Payments and circles what he wants me to pay. I just don’t get it, I’ve been doing AP for 20 years. I know how to check to make sure we’re not making overpayments.
Answer: Postings to Accounts Receivable should be restricted to receivables for program services, or grants. Postings to Pledge Receivables should be restricted to pledges for charitable contributions. I have no idea what you mean by ‘middle man.’
In the normal course of performing nonprofit bookkeeping tasks, you may have encountered some of these issues. It is good practice to consult a nonprofit accounting pro to determine the best course of action to prevent costly errors.
We hope our answers provide clarification. We welcome your questions and feedback. Feel free to comment below.