Your accounting and development departments are central to the continued financial health of your non-profit. So, what happens when communication between these two functions break down? It could result in conflict between staffers, inaccurate financial statements, and, in a worst-case scenario, the forfeiture of grant funds. Here is how you can encourage collaboration.
Note Different Accounting Methods
Make sure staffers understand that accounting and development typically record their financial information differently. Development may use a cash basis of accounting, while accounting records contributions, grants, donations, and pledges in accordance with Generally Accepted Accounting Principles (GAAP). This means that they produce numbers that vary but that nonetheless are both correct.
For example, a donor makes a payment in March 2021 on a pledge made in December 2020. The development department will enter the amount of the payment as a receipt in its donor database in March. However, accounting will record the payment against the pledge receivable that was recorded as revenue when the pledge was made in December. Receipt of the check will not result in any new revenue in March because the accounting department recorded the revenue in December. Both departments’ figures for March 2021 (and for December 2020) will be accurate, but they will disagree with each other.
Enforce Clear Protocols
Your nonprofit should try to reconcile its accounting and development schedules at least monthly. It also needs clear protocols for communicating important activity — or both departments, and your organization, could experience negative consequences.
If, for example, development fails to inform accounting about grants on a timely basis, the latter will not be aware of the grants’ financial reporting requirements and could forfeit funds for noncompliance. If the accounting department does not record grants or pledges in the proper financial period according to GAAP, your organization could run into significant issues during an audit, which could jeopardize funding.
Schedule meetings so that accounting representatives can educate development staff about what information it needs, when it needs it, and the consequences of not receiving that information. For its part, development should provide accounting with ample notice about prospective activity such as pending grant applications and proposed capital campaigns.
Development also should present status reports on different types of giving — including gifts, grants, and pledges. This is especially important for those items received in multiple payments because accounting may need to discount them when recording them on financial statements.
Whether your non-profit can count its staffers on two hands or has hundreds of employees, coordination between departments can easily break down. Contact us about establishing policies and procedures that promote the efficient communication of financial information.