The financial health of your California nonprofit is dependent on clear communication between your accounting and development departments. When communication breaks down, it could result in conflict between staffers, inaccurate financial statements, and forfeiture of grant funds. Below are four steps your nonprofit can take to encourage collaboration and improve communications.
1. Note that each department might use different accounting methods
Staffers should understand that the accounting and development departments typically record their financial information differently. The development department might use cash basis accounting, which records revenue only when cash is received, while the accounting department follows Generally Accepted Accounting Principles (GAAP), which records revenue when earned. Though the methods produce varying numbers, the numbers are both correct.
Here’s a sample case:
A donor makes a payment in March 2021 on a pledge made in December 2020. Under cash basis accounting, the development department will enter the payment amount as a receipt in its donor database in March. But according to GAAP, the accounting department will record the payment as revenue when the pledge was made in December. In other words, this won’t result in any new revenue in March because the accounting department recorded the revenue in December. Both departments’ figures for March 2021 (and December 2020) will be accurate, but will disagree with each other.
2. Enforce clear communication protocols
Your nonprofit should reconcile its accounting and development schedules at least monthly. It also needs clear protocols for communicating important activity, or there could be negative consequences.
For example, if the development department fails to inform the accounting department about grants on a timely basis, the latter won’t be aware of the grants’ financial reporting requirements and could forfeit funds for noncompliance. And if the accounting department doesn’t record grants or pledges in the proper financial period according to GAAP, your nonprofit could run into significant audit issues and jeopardize funding.
3. Prioritize communication between departments
Schedule meetings so that accounting representatives can educate development staff about the information it needs, when it needs the information, and the consequences of not receiving that information. For its part, development representatives should provide accounting staff with ample notice about prospective activity including pending grant applications and proposed capital campaigns.
The development department should also present status reports on different types of giving, including gifts, grants, and pledges. This is especially important for items received in multiple payments because the accounting department may need to discount them on financial statements.
4. Enlist California nonprofit audit services for assistance
Whether your nonprofit can count its staffers on two hands or has hundreds of employees, coordination between departments can easily break down. Contact Ernst Wintter & Associates LLP for an audit of your California nonprofit, and help determining how to improve your nonprofit’s communication of financial information.