Reporting and Operations

Systems & Procedures

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.

Financial Management CycleNo matter how small your organization, following good financial management procedures makes good sense. Doing so helps ensure the staff and board of the organization are fulfilling their stewardship responsibilities, and makes it more likely the organization will be sustainable for the long term and continue to fulfill its mission. Establishing good financial policies and procedures when the organization is small positions it to weather a growth spurt without needing to completely redesign its financial operating systems.

There is abundant detailed information about accounting systems and procedures, and examples of finance-related policies, available elsewhere on this Web site and on many others. Below are key principles and some basic systems and procedures tips for small and midsized organizations to consider.

Key principles:

  1. A set of policies should be adopted by the board and senior staff clearly stating the organization’s expectations for transparency and accountability for all finance-related functions.
  2. Procedure manuals should document financial processes to promote good internal controls and board members and senior staff must ensure procedures are being followed. Manuals must be specific, include who is responsible for each action, and require every recorded financial transaction be matched to adequate supporting documentation. The manual should be updated regularly. Having a written financial procedures manual is critical to good risk management. It ensures how your organization operates is institutionalized and won’t vanish if your key administrator wins the lottery and goes to (pick your dream place), after leaving your organization a nice parting gift, of course.
  3. Sufficient investment in infrastructure must be made to enable staff to perform financial operations effectively. This includes hiring skilled personnel with adequate training in nonprofit finance and accounting practices, and acquiring and maintaining up-to-date accounting software and hardware. Even very small and volunteer groups must seek the most capable person to handle the finances and ensure the group is in compliance with required nonprofit reporting and filing. See: Outsourcing the Strategic Financial Function.

Procedure tips for Small and Midsized organizations:

  • Design internal processing forms with information and coding arranged in such a way as to facilitate entry of transactions in accounting software. Include a place for an approval signature and require approval before processing to achieve good internal controls.
    Link: Example Check Request / Credit Card Transaction Form 
    Link: Example Deposit Cover
  • Do things on a regular schedule. Cut checks no more than once per week, for instance; cutting checks on demand can result in poor cash flow decisions and disruption to the work flow of the bookkeeper and supervisors.
  • Keep a calendar with finance-related deadlines on it (annual professional surveys, business and solicitation license renewals, payroll tax deposits, sales tax payments, 941s, unemployment quarterlies, 990, 1099, W-2, transmittals for both, etc.) Even if an outside vendor handles payroll, follow though to ensure all filings and tax deposits have taken place.
  • Develop a month-end checklist to follow to “close the books” for the month. This should include a review of each month’s transactions to make sure each has been assigned to the right account. Also, each bank, asset, liability, and restricted account should be reconciled to statements from external institutions (banks, credit card companies) or internal schedules or lists (for example: a list of what is owed to the organization, a list of furniture and equipment, a list of payables, a list of restricted grants).
    Link: Month End Checklist-Small & Midsized Organizations 
    Link: Outstanding Prior Year Checks
  • Write notes to yourself as ideas, issues, and questions arise (notes regarding adjustments to make at month end, budget notes, audit notes/questions, etc.) and put them in a follow-up folder immediately while you are thinking about it.
  • Keep a financial statement binder with month divider tabs to collect and store copies of bank statements, schedules, financial statements, and documentation for all adjusting entries for each month. This binder will also come in handy as a reference during your audit.
  • Keep an audit folder. Make and file copies of documents you know will be requested for the audit while you have them in your hands (foundation award letters, 941 reports, new leases, equipment purchase receipts, for example). Prepare for the audit all year long to cut down on the time required to gather information at the end of the year.
  • Design your chart of accounts income and expense line items to align with budget income and expense line items. Financial reports, accounting structure, and budget should all match in format. Consistency among these makes it easier for staff and the board to compare apple to apples.
  • Make sure important organizational documents and records are stored securely and archive copies are held off site by your accountant, counsel, and/or board officers. For documents you will need to make frequent copies of (such as the IRS Letter of Exemption/Determination Letter, Form 990, Bylaws, Articles of Incorporation, etc.) make a good clean copy of the original to make other copies from and store it in an envelope labeled with the document name and date and marked “Make Copies from This”. Store the original in a separate envelope in your file marked “Original – Do Not Remove!” This helps to prevent the originals from getting lost and the quality of the copies from deteriorating. These days, scanning and making PDF copies of these documents makes it easier to share them with interested parties. (Be sure to cover the social security number of an individual 990 preparer when copying or scanning this document for sharing.)
  • Develop a good naming protocol and system for organizing folders for electronic files. “Version control” can be a problem when circulating both word processing and spreadsheet documents for comment and editing. If you are consistent with the file name and end it with a version date in year-month-day order, the files will stack up with the latest version at the bottom. For instance, the operating budget might be called “ORG Ops Budget FY08” and a second or third version would be called “ORG Ops Budget FY08 v2007.11.15” and “ORG Ops Budget FY08 v2007.12.02”.

Other Resources:

Initiative for a Unified Chart of Accounts: An Attempt to Define Our Own Terms
National Center for Charitable Statistics / Urban Institute

© 2008 Elizabeth Hamilton Foley