Chapter 19
Ten Tips for Not-for-Profit Organisations
In This Chapter
Being a budget dragon and keeping the organisation on track
Blinding the board of directors with your brilliance
Delivering grant acquittals that ensure you get another round
Surviving an audit in flying style
Doing the right thing with other people’s money
Not-for-profit organisations provide some of the most complex bookkeeping environments ever. Even if an organisation is relatively modest in size, the bookkeeper often has to cope with convoluted cost centre reporting, intricate budgets, rigorous monthly reporting, meticulous audits and much more.
The difficulty is compounded by the fact that not-for-profit organisations are usually run on the smell of an oily rag. As a bookkeeper, you’re often paid a relatively low wage, and given surprisingly few hours to do an overwhelming amount of work. And, even if you lack the skills to understand all aspects of your job, there’s usually nobody else in the organisation to help you out.
In this chapter, I provide a few pointers that can hopefully help you identify the main trouble spots for bookkeeping in not-for-profit organisations, along with some ideas of how to navigate these. This said, don’t underestimate the value of getting some extra training if you feel your skills aren’t up to the job, particularly in the area of payroll, and make time to network with other bookkeepers in local community organisations.
Know and Love Your Cost Centres
Almost any not-for-profit organisation has multiple cost centres, such as different projects, divisions or grants. For example, our local community day care centre has different grants and reporting requirements for long day care versus occasional care, and the special needs unit next door has different reporting units for its playgroup, toy library, respite care and workshops. Similarly, our local Catholic diocese has a separate cost centre for each church and, within these, each church runs different cost centres for each activity.
Reporting for multiple cost centres makes for demanding bookkeeping. Here are some tips that may help stave off those grey hairs:
- Let your accounting software do the legwork: In MYOB, the easiest way to track different cost centres is to use the job feature; with Reckon Accounts and QuickBooks Online, class tracking is the way to go, and with Xero, you can use the (still somewhat limited) category tracking option. These features mean that you don’t need to create separate accounts for every expense for every cost centre, a topic I explore in more detail in Chapter 2.
Consider recording cost centre splits once a month only: If you’re required to split admin expenses across many cost centres, consider doing this split once a month using a general journal entry. In other words, instead of splitting a single transaction for something petty like bank fees across five cost centres, you wait until the end of the month, and then do a journal allocating the total monthly expense for bank fees across these cost centres. (To do this journal, you debit and credit bank fees as the expense account, but you include job codes on the debit lines and leave the job code on the credit line blank.)- Don’t be too pedantic: Remember that cost centre reporting is a management tool only. So if you’re struggling to split a single employee pay across a squillion cost centres, you’re probably taking things too far.
- Network with other bookkeepers: Some of the best bookkeepers I’ve ever come across are bookkeepers working for not-for-profit organisations. Try to get together with other bookkeepers in organisations similar to yours with an aim to sharing training, tips and ideas. You could even set up monthly breakfast meetings, annual training seminars or online discussion groups.
Become the Budget Queen
After cost centres, budgets are the next most demanding aspect to working in the not-for-profit sector. Budgets are the linchpin of not-for-profit decision-making, and the bookkeeper ends up being in the middle of it all.
Most budgets are effective only if you get enough collaboration, and involve managers in controlling their own budgets. I once consulted to an organisation that had nine group homes, with a manager in each one. Although the managers were involved in setting budgets, most managers never really stuck to them. At the end of six months there would be a general flurry, a rush of complaints that managers had overspent, and yet another budget review. Then the whole cycle would begin once more. This cycle was only broken when I suggested that the bookkeeper start emailing reports to managers at the end of each week indicating how much of the monthly budget had been used so far, and how much they had left to spend.
If you find the budget reporting in your accounting software too limited, I can highly recommend Calxa, an add-on software solution that provides simple yet very elegant budget and cashflow reports for non-profit organisations and small business. Calxa currently integrates with MYOB, Reckon Accounts and Xero. (For more info, see www.calxa.com.au.)
The starting point of any budget is the organisation’s strategic plan. Of course, board members should be aware of this, but many not-for-profit boards are run by volunteers who are new to the game. So, if you get a board member coming to you and saying ‘Hey, can you draw up a draft budget for next year?’, remember that the most correct response is probably ‘Sure, but give me a strategic plan that outlines your goals and priorities first’.
Get the Terminology Right
A friend of mine belonged to a bicycle cooperative many years ago in which the committee decided that the words ‘nipple’ and ‘nut’ were sexist, and recalls hilarious tales about the difficulty of organising mechanical repairs while avoiding these ‘misogynist’ words. I was reminded of my spell doing books for a food cooperative, where the words ‘net profit’ were deemed to be a capitalist outrage. The demands that the word ‘profit’ be replaced with ‘surplus’, something the accounting software didn’t cater for, required hours sending reports to Excel each month.
You may not be on the receiving end of such nonsense, but even so, it pays to make sure you get the terminology right. In particular, not-for-profit organisations often show capital expenditure as part of an Income & Expenditure report. An Income & Expenditure report is the same as a Profit & Loss report, but includes all expenditure rather than just expenses (expenditure includes all money spent, including the purchase of new assets).
If you use accounting software, the easiest way to generate an Income & Expenditure report is to allocate capital expenditure to an expense account called Capital Equipment or something similar. You can then generate a regular Profit & Loss report and simply change the title of the report. The accountant or auditor can make an adjustment later on, when preparing final financial statements, that records capital expenditure to the asset account where it truly belongs.
Report to the Board
When you’re a bookkeeper for a not-for-profit organisation, you report to a board of directors (also sometimes called a management committee). Here is where you can let your organisational skills shine, and dazzle the board with your brilliance:
- Get the timing right: Convince the board to meet in the third or fourth week of every month so that you can finalise reports for the previous month in time. Organise the whole schedule of your bookkeeping cycle around providing timely financial reports to the board.
- Give board members a heads up: Try to prepare reports at least five days in advance of the board meeting, and email these reports to the board so that they have time to review them beforehand.
Present information well: Work with the secretary to collate a single document that contains all the board reports. These usually include financial statements (Income & Expenditure report, Actual versus Budget reports and a Balance Sheet as a minimum), and non-financial documents, such as the minutes from the previous meeting, reports from sub-committee meetings and the agenda for the current meeting. If possible, combine all these individual documents into a single PDF document and email it to the board members before the meeting.- Provide a commentary: Remember that many volunteer board members aren’t experienced at reading financial reports. Provide a one-page commentary that highlights the key points — for example, pointing out that wages have gone up more than 10 per cent between one year and the next, or that income from donations is under budget by 25 per cent.
Get Help with Payroll
Don’t underestimate how complex payroll can be in a not-for-profit organisation, especially in Australia. Employee loans, complex fringe benefits and salary packaging are just a few of the delights that wait in store.
The main thing is not to feel overwhelmed, and don’t blame yourself — chances are the task you face really is difficult. If you’re not sure how to do something, ask for help rather than feeling embarrassed and, if possible, ask your employer to pay for some specialist payroll training.
Do Killer Grant Reporting
Sadly, often the success of getting a grant renewed from one year to the next doesn’t depend on how brilliant a job is done planting trees, teaching children or counting whales; rather, the success rests on how well the bookkeeper or board of directors complete the grant acquittal, where you report how you spent the money and what the outcomes of the project were.
Play the piper’s tune. Find out in what format the grant body wants financial reports and, however weird and convoluted this format seems, present the information that way. If necessary, reallocate transactions so they fit into the categories that the grant body wants to see. (Tip: If these categories don’t fit with your other reporting obligations, try sending reports out of your accounting software and tweaking them in Excel.)
The other problem you may encounter is if you receive the grant income in advance of the grant period. For example, maybe your organisation reports on a calendar year basis (January to December) but gets a great big lump of funding in advance the previous year. To report correctly, you need to allocate the receipt of funds to a liability account (usually called Unearned Grant Income or something similar). Only when the grant period starts do you make a journal entry that debits this liability and credits Grant Income, so that Grant Income appears in the correct reporting period. For more details, check out Chapter 13, where I explain more about journal entries and accruals.
Be Accountable at All Times
When you work for a not-for-profit organisation, the obligation to be totally on the level and accountable for every penny spent is even more important. After all, the money that you’re dealing with isn’t yours.
Here are some pointers to bear in mind:
- Separation of duties: As a bookkeeper, never handle cash receipts. If you’re asked to do so, explain that this goes against best practice for a not-for-profit organisation, and may even leave directors personally liable should a bookkeeper do the wrong thing in the future. Similarly, although as a bookkeeper you can record supplier bills and employee pays, you shouldn’t be able to sign cheques or authorise electronic payments.
- Source documents: Always be able to lay your hands on a source document for every single payment. A source document is a document that proves the legitimacy of this payment. For example, the source document for employee wages is a timesheet, the source document for a supplier payment is a supplier bill, and the source document for rent is a lease or an invoice.
- Authorisation of payments: When preparing bills for payment, check that these bills have been authorised by the person responsible. Similarly, never process bills for expenses that haven’t gone through the approved channels, such as an employee expense claim.
- Code of conduct: I talk about the bookkeeper’s code of conduct in Chapter 18. If you’re not aware of the code of conduct, take some time to get familiar with this pretty sensible bunch of guidelines.
Make Sure You Can Survive an Audit
The degree of accountability and standard of reporting that an auditor requires from a not-for-profit organisation depends very much on the organisation itself. A school committee with total income of $30,000 per year faces very different requirements than a charity accepting grants and donations of millions of dollars for that same period.
Interestingly enough, however, many of the principles of preparing for an audit remain the same, regardless of an organisation’s size. The basic concept of any audit is the ‘verification of Balance Sheet items’. In other words, the auditor seeks proof that the balance of every single account on the Balance Sheet is correct.
You can make the auditor’s life easier by preparing this proof yourself. For example, the proof of a bank account balance is the closing bank statement; the proof of an inventory balance is the stocktake reports; the proof of trade debtors is copies of outstanding invoices. You get the picture.
In addition, make sure all source documents are filed (whether electronically or physically) in an organised fashion. Organise supplier invoices by supplier name, and in date order. Similarly, file any other documents such as customer receipts, employee timesheets or petty cash receipts in date order, so that the auditor can double-check transactions in the blink of an eye, rather than having to wade through piles of chaotic paperwork.
Track Membership Dues with Care
If you do the books for a member-based organisation, remember that the membership database forms part of the financial records of the organisation, and has to come up to scratch as far as the auditor is concerned.
Here’s how to keep your membership database in line:
In the membership database, make sure you have a report showing total membership renewals, the rate for each renewal and total membership income.
In your accounting system, ensure that membership dues are receipted correctly, and that membership income is allocated into a separate income account.
Last, make sure that membership income as per the database matches membership income in your accounts.
Know When to Use Trust Accounts
Sometimes in not-for-profit organisations, you end up handling money that doesn’t belong to the organisation. Sometimes, this takes the shape of auspicing, where you manage funds on behalf of another organisation or group. For example, our local community choir receives an annual grant from the local council, but the council gives the funds to our local neighbourhood centre to manage.
Other times, organisations are responsible for handling money for others in the form of controlled monies or trust accounts. For example, a provider of services for people with profound disabilities may be authorised to access the bank accounts of its clients, but its clients’ funds remain completely separate to those of the rest of the organisation. This scenario is likely to become even more frequent with the implementation of the National Disability Insurance Scheme (NDIS).
Stay tuned to what funds belong to the organisation, and what funds don’t. I find that if one organisation auspices another, the easiest approach is usually to create a separate bank account for the organisation that’s being auspiced, and then track income and expenses as a separate cost centre (for more about cost centres, refer to ‘Know and Love Your Cost Centres’ earlier in this chapter).
Depending on the situation, you may find that using bank feeds combined with bank rules to assist with data entry works really well for some kinds of trust accounts, where the transactions are very similar from month to month.
Also, keep in mind that if you’re responsible for doing the books for any kind of controlled monies or trust account, the records that you keep are probably governed by specific legislation for your industry. For example, you may be required to issue receipts for every transaction, use accounting software that meets certain minimum standards or provide trust audit reports on a monthly basis.