PublicNTP’s Financial Structure
August 21, 2017
August 21, 2017
As mentioned in our source article, creating spotless financial records early on -- plus supporting documentation of the financial policies -- is crucial when running a tax-exempt corporation.
The company is subject to audits by state or federal organizations at any point. After all, a company that’s considered a 501(c)(3) can all too easily become a fraudulent business without close monitoring.
When considering the public charity path, make sure you know how you’re reconciling your finances and how often.
Being a time-centric company, it should come as no surprise that PublicNTP reviews our records quite frequently!
Managing the financial books for a small nonprofit is not difficult, but it demands a lot of learning, careful attention, and constant diligence.
Your treasurer can certainly learn how to do the task well by doing some brief research on the internet, reading a book or two, and by using the right tools.
PublicNTP decided to outsource its bookkeeping to an accounting firm that specializes in nonprofit organizations and is staffed entirely by Certified Public Accountants (CPA’s).
In addition to shifting this task to another team, our board of directors can be confident in the knowledge that our books are being worked by CPA’s, specialists in the field who are required to complete many hours of continuing education per year in order to keep up on the latest developments in the field.
It’s worth the cost to know our financials are being handled by a trained, licensed professional in accordance with Generally Accepted Accounting Practices (GAAP) at every opportunity.
Monthly Reconciliation and Statements
At the end of each month, do a reconciliation run across the financials. Make sure that all the columns that should add up and be equal still are!
Forgetting to do this over 3-4 months can make balancing the books a big challenge. Put a monthly reminder in your phone, and force yourself to take the hour to square everything up. In a couple months, it could easily end up taking a full day.
A brief monthly financial statement should be created at the end of the reconciliation that should be entered by the Secretary into the organization’s formal recordkeepingsystem.
Quarterly Financial Reports
The bookkeeper should generate quarterly financial reports that are delivered to all members of the Board of Directors.
These reports summarize income, expenses, etc. These are incredibly valuable in the event of an audit of your group’s finances. Showing that a detailed summary was generated every three months is great evidence to present during an audits. It serves as proof that the books were in order and the directors were doing all necessary due diligence in keeping current with the financial health of the organization.
Yearly Financial Reports
The yearly report should be generated from the quarterly reports, and formally presented at the Board of Directors meeting. By insisting on monthly and quarterly check-ups, this monumental annual task is reduced to a swift compilation of the existing monthly/quarterly reports.
If you decide to outsource your company’s bookkeeping, require that the accountant attends (even if virtually) the annual Board of Directors meeting, so they can provide assistance to the Treasurer when financial matters are being discussed. This will remove any risk of communication problems about the initial recordings and any interpretations the directors may have.
Consider Annual, Independent Financial Statement Reviews or Audits
For a small nonprofit, this may well be overkill. That said, the PublicNTP leadership are big fans of overkill when it comes to financial transparency.
Retaining an independent CPA to either do a full-blown audit, or a more limited “financial statement review,” is a way for small nonprofits to help give confidence to donors that the organization will handle their money properly.
If your treasurer is keeping your books, hire a CPA to perform this task. If you are outsourcing your bookkeeping to an accounting firm, hire a CPA with an accounting firm completely independent of the accounting firm handling your books to generate this report.
It’s a lot to process. But at its core, this financial organization simply demands diligence. You may decide on a different structure but it’s important to ensure that your process is comprehensive and accurate, whatever it is.
Now that you’ve determined how finances are going to be organized for your tax-exempt company, you can progress to the last stage of this application: the stacks of paperwork that need filling out.