These days, tax and accounting regulations have continuously added more compliance and regulatory requirements that nonprofits have to comply with. Many individuals start a nonprofit due very noble reasons but many executive directors and founders quickly realize that compliance could be overwhelming. And while small mistakes can be fixed easily or even go unnoticed, bigger mistakes can harvest major consequences, especially if you’re running a non-profit organization. It can even result in losing your tax exemption .
Here a few common mistakes to avoid the attention of the all-seeing IRS:
Failure to follow simple accounting: It’s easy to overlook small accounting mistakes, so organization is key. Setting up a detailed and documented process for managing financial and bookkeeping tasks is critical in ensuring that your organization doesn’t make any mistakes.
Recognizing restrictions: Accounting regulations require that nonprofits report income in one of two categories: with donor restrictions or without donor restrictions. You can determine restrictions based on what the donor says you can use the funds for. This is important in how you present your financial statements.
Not having a budget: You wouldn’t want to overspend on your family’s personal budget, so why would you want to over spend on your organization? Keeping track of your non-profit organization’s expenditures is extremely important. Start with creating a simple budget to keep track of money spent by checking the most recent bills and deposits. Soon enough, you’ll see that tracking the money going in and out can be a great advantage in keeping your non-profit organized and efficient.
Internal Control: As a non-profit , you have a huge responsibility to ensure funds are properly used and recorded. You want to at least put controls in place to avoid misuse of funds or even fraud. To help mitigate this risk, you should have strong internal controls in place and separation of duties that are in line with best practices and standards. Sometimes, having an external accounting firm helps a lot in providing checks and balances to a small organization.
No properly categorizing: Did we mention that organization is key? Properly categorizing all money coming in and going out of your organization is paramount especially if you accept donations for certain programs. It is recommended to set up a chart and plan out how specific items should be categorized. Having a good Chart of Accounts can do wonders in helping categorize income and expenses.
What can be done to prevent mistakes?
Hire a Professional: We don’t recommend hiring volunteers, or otherwise untrained personnel, to take care of your accounting needs. While cutting costs is important, leaving your accounting books in the hands of a volunteer can leads to more costs down the road, including potential penalties from the IRS. We recommend bringing on an accounting professional that uses accounting software to help organize and keep track of expenditures can be a powerful tool in avoiding mistakes.
Outsource to a Third Party: You may also consider outsourcing your accounting needs to a third-party expert. This is free up time and can ensure that your non-profit organization steers
clear of any potential accounting issues.
LTD Global Can Help
LTD Global can help with your non-profit organization’s accounting needs. Put your trust and financial safety in the hands of professionals. LTD Global has been assisting non-profit organizations with their accounting needs for years and we can help your organization get on track and stay there. To find out more on how we can help, contact LTD Global for more details