Small nonprofits need good accounting and reporting systems just like large organizations. Find out how to do this right in a small organization. Check out the Faith Philanthropy and Change Conference at Taylor University on June 8 and 9. Register at taylorconnect.org/nonprofitconference2015 See you there!

1. © 2014 KSM Business Services, Inc.
NonProfit Accounting and Reporting
June, 2015
Nicholas J. Wallace, Managing Director
Higher Education Services

2. 2 ksmcpa.com
1. Introduction
2. Review of accounting systems
3. Discuss accounting process best practices
4. Internal control basics for small organizations
5. Financial reporting
Agenda

3. 3 ksmcpa.com
Nick Wallace
- Katz Sapper & Miller CPA’s (Top 100 firm)
- 34 Years of experience with nonprofits of all sizes
- Board experience with large and small organizations including
a college, a county social service agency and a small
international ministry (Mission to Ukraine)
Introduction

4. 4 ksmcpa.com
Can’t I get by with some handwritten notes, a spreadsheet
and a bank statement?
Things to consider:
1. Number of transactions
2. Complexity
3. Degree of centralization
Accounting Systems

5. 5 ksmcpa.com
Can’t I get by with some handwritten notes, a
spreadsheet and a bank statement?
ANSWER – No!
You will most likely be better off with some form of
accounting system.

6. 6 ksmcpa.com
▪ Here’s Why:
• Improved controls (Software Controls)
• Fewer opportunities for human error
• Improved reporting capability
• Less manual work/more automation
• Software many times will “talk” to other key systems like
fundraising packages.
Accounting Systems

7. 7 ksmcpa.com
Some “In between” solutions:
1. Bank reporting tools with online banking
2. Guide Serve System
Accounting Systems

8. 8 ksmcpa.com
Wells Fargo Small Business

9. 9 ksmcpa.com
Wells Fargo Small Business

10. 10 ksmcpa.com
GuideServe Outsourced Accounting

11. 11 ksmcpa.com
GuideServe Outsourced Accounting

12. 12 ksmcpa.com
Accounting Systems
What’s available?
1. Low end and online (Under $1Mil)
2. Mid Range (Over $1Mil or complex)
3. Other (International, heavy grant reporting,
sophisticated users like Foundations and Federal
Government)

13. 13 ksmcpa.com
▪Sage One*
• Online accounting
• Online invoicing
• Project/task management
• Dashboard reporting
• Less than $20/mo
* Introduced Sage One Nonprofit in 2012 - Currently $349/mo
Accounting Systems – Low End

14. 14 ksmcpa.com
▪ What’s available?
▪ Quickbooks*
• Market Leader
• Prescribed reporting
• Good – (thinking is done for you)
• Bad – (less flexible)
• Lots of bookkeepers familiar
• $200/Basic $400/Multiuser
▪ *also online Nonprofit version also available
Accounting Systems – Low End

15. 15 ksmcpa.com
▪ What’s available?
▪ Sage 50 (AKA Peachtree)
• Designed for fewer than 50 employees
• Preferred by accountants for flexibility in reporting
• $299/yr (Single user) to $3,249/yr (multiuser)
Accounting Systems – Mid Range

16. 16 ksmcpa.com
▪ Fund E-Z
• Pricier (Probably $2,000 single user)
• Designed for Nonprofits
• Small user base (might be hard to find someone who is
familiar with it)
▪ Abila MIP (Formerly Sage MIP)
• Large user base (over 8,000)
• Good reviews
• Send in request for pricing
Accounting Systems – Mid Range

17. 17 ksmcpa.com
▪ Literally dozens to choose from:
• Watch for pricing plus training needed
• Watch for annual licensing fees
▪ Places to look:
• AccountingSoftware411.com (Browse by Industry)
• Findaccountingsoftware.com (Browse by Indistry)
Accounting Systems – Other Systems

18. 18 ksmcpa.com
Questions on Accounting Systems?

19. 19 ksmcpa.com
1. Think through procedures and DOCUMENT
2. Calendarize steps & establish people responsible
3. Maintain accountability (manage expectations)
4. Maintain calendar of compliance deadlines
▫ Funder reports
▫ Tax reporting
▫ Other compliance oriented reporting
Accounting Process Best Practices

20. 20 ksmcpa.com
Each major accounting cycle should have a set of
documents that govern policies and procedures related to
that area:
1. Revenue/Receivables
2. Disbursements/Expense/Payables
3. Cash and Investments
4. Fixed Assets
5. Debt
6. Equity (Especially Temp Restricted and Perm Restricted)
Accounting Process Best Practices

21. 21 ksmcpa.com
Payroll?
Let someone else do that!
Accounting Process Best Practices

22. 22 ksmcpa.com
Questions on Accounting Process Best
Practices?

23. 23 ksmcpa.com
What we will cover
• General Issues/Segregation of duties
• Contributions
• Payroll
• Disbursements/ Accounts Payable
Internal Control Basics

24. 24 ksmcpa.com
1. Reconcile banks monthly
2. Reconcile other accounts monthly
3. Bank statement to be opened and reviewed by
someone other than check preparer
4. Keep unused checks locked up/limit access
5. 2 signatures on larger checks
6. Make deposits daily
7. No checks payable to cash
8. No corporate credit cards
Internal Control Basics – General Issues

25. 25 ksmcpa.com
1. Prevent one person from having both access to assets (like
cash) AND the ability to make accounting entries (to cover up
the fraud).
2. Small organizations – design compensating controls
- Board member review of bank statements
- Board member review of executive director/president expense reports
Internal Control Basics – Segregation of
Duties

26. 26 ksmcpa.com
1. Dual Control if possible
2. Prenumbered receipts and account for numerical
sequence of use
3. Restrictively endorse all contributions immediately
4. Limit delays in process contributions
5. Deposit daily
6. Reconcile donor system and General ledger
accounting monthly
Internal Control Basics – Contributions

27. 27 ksmcpa.com
1. Segregate setting up employees and changing pay rates
from the payroll check processing function
2. Someone should always review the physical evidence of
the deposit of payroll taxes each pay period.
3. Reconcile payroll tax return information and accounting
records quarterly
4. Executive level review of payroll detail report monthly
5. Executive level review of payroll tax returns when
completed.
Internal Control Basics – Payroll

28. 28 ksmcpa.com
1. Use Prenumbered checks
2. Use checks in sequence and account for all checks
3. Enter even $0 or voided checks into accounting system
4. Make the check preparer function separate from the expense
approval
5. Document board approval of check signers in board minutes
6. Don’t sign blank checks
7. Have a new vendor approval process (document)
8. Reconcile accounts payable detail and general ledger
9. Run and review an accounts payable aging report monthly
Internal Control Basics – Disbursements/
Accounts Payable

29. 29 ksmcpa.com
Questions on Internal Control Basics?

30. 30 ksmcpa.com
▪ Basic Principles
▪ Key Questions
▫ Balance Sheet
▫ Statement of Activity
▫ Statement of Cash Flows
▪ Use numbers, stories and pictures/graphs
Financial Reporting

31. 31 ksmcpa.com
1. A successful nonprofit is dependent on more than just
financial stability…so more than numbers are needed to
assess the success of the institution
2. External statements by themselves are too much detailed
information to digest at one meeting. Boards need
summary information.
3. The whole story is not found in the external statements
4. Care for the systems and people that produce the data is
as important as the data itself
Background Principles

32. 32 ksmcpa.com
▪ Internal management and board
▪ Broad constituency
▫ General public
▫ Donors and potential donors
▫ Foundations
The data and messages are a bit different for each
Two Primary Audiences

33. 33 ksmcpa.com
▪ Analytic questions on the three statements:
▫ Balance Sheet
▫ Income Statement
▫ Statement of Cash Flows
Internal Management and Board

34. 34 ksmcpa.com
1. Are your institutions existing resources sufficient and
flexible enough to enable it to fulfill its mission?
What to watch:
▫ Unrestricted net assets (Growth of this amount, net of Net
PP&E in relation to total expenses)
▫ Temp restricted net assets and the related hard assets to
back them up.
▫ Permanently restricted net assets (Are hard assets
adequate and is this balance growing with the institution?
Key Questions – Balance Sheet

35. 35 ksmcpa.com
1. How did your institution perform this last year?
2. Are you living within your means?
3. How reliant are you on one or more revenue streams?
4. Do operating expenses reflect organizational priorities?
5. How dependent are you on investment income?
6. How well are you managing investments?
7. How well are you managing fundraising?
Key Questions – Income Statement

36. 36 ksmcpa.com
Key Questions – Cash Flows
1. Was cash flows from operations positive?
2. Did cash increase or decrease?
3. Was the increase in cash brought by borrowing?
4. Was cash “locked up” by paying down debt?

37. 37 ksmcpa.com
▪ Mission accomplishments
▪ Financial health
▪ The future
Constituency

38. 38 ksmcpa.com
Constituency Report Examples

39. 39 ksmcpa.com
The Nature Conservancy Annual Report

40. 40 ksmcpa.com
The Nature Conservancy Annual Report

41. 41 ksmcpa.com
The Nature Conservancy Annual Report

42. 42 ksmcpa.com
The Nature Conservancy Annual Report

43. 43 ksmcpa.com
The Nature Conservancy Annual Report

44. 44 ksmcpa.com
The Nature Conservancy Annual Report

45. 45 ksmcpa.com
The Nature Conservancy Annual Report
The 36 ACHIEVEMENTS that follow exemplify the many ways we protect, transform
and inspire. But none stands alone: An act of protection will also serve to transform
policy and practices elsewhere and inspire additional investments in nature … that will
empower more protection.
Each achievement profiled here is part of a continuing cycle of protection,
transformation and inspiration that fuels the Conservancy and its partners to safeguard
nature at the scale and scope needed to enable people and nature to thrive globally.
These illustrative efforts are accompanied by the voices of supporters, staff, partners
and local stakeholders—all of whom are required to make these achievements a reality

46. 46 ksmcpa.com
The Nature Conservancy Annual Report

47. 47 ksmcpa.com

48. 48 ksmcpa.com
Questions on Financial Reporting?

49. 49 ksmcpa.com
▪ Use a good Accounting System, don’t rely on spreadsheets and
bank statements
▪ Establish accountability and a disciplined process to produce
clear, accurate and timely reports
▪ Pay attention to internal control issues and make adaptations
as needed.
▪ Communicate about the key accounting questions asked and
use BOTH financial and nonfinancial data
Conclusion