Communication breakdowns between a nonprofit organization’s development and accounting departments can lead to confusion, embarrassment and, worse yet, financial problems. Nonprofits, therefore, must take proactive steps to facilitate collaboration between these two critical functions. Here are three tips:
1. Get a handle on the differences
Accounting and development typically record their financial information differently, which is why they can produce numbers that vary but nonetheless are both correct. The development department likely uses a cash basis of accounting, while the accounting department records contributions, grants, donations and pledges in accordance with Generally Accepted Accounting Principles (GAAP).
How does this difference play out? Let’s say a donor makes a $10,000 payment in April 2017 on a pledge made in December 2016. The development department will enter the amount of the payment as a receipt in its donor database in April.
The accounting department, however, will record the payment against the pledge receivable that was recorded as revenue when the pledge was made in December. Receipt of the check won’t result in any new revenue in April because the accounting department recorded the revenue in December. Both departments’ figures for April 2017 (as well as December 2016) will be accurate, but they’ll disagree with each other.
Disparities also arise with capital improvements. The development department will often show such cash outflows as expenditures for budgeting purposes while accounting records report the expenditures as assets which are then depreciate over their useful lives. This difference in accounting will result in the development department showing larger expenses than the financial statements produced out of the accounting department.
2. Establish clear policies and procedures
With two different approaches to recording financial information under one roof, it’s critical that nonprofits reconcile their accounting and development schedules on at least a monthly basis. They also need clear protocols for communicating important activity — or both departments, and the organization could experience negative consequences.
For example, if development fails to inform accounting 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, the organization could run into significant issues during its audit — which could jeopardize funding.
3. Require regular communication between department representatives
Probably the last thing anyone wants is more meetings, but the stakes are too high to leave communication between the two departments informal. Initially, accounting representatives can use meetings to gently educate development representatives about the information it needs, when it requires it, and the consequences of not receiving that information.
Development staff should provide accounting with ample notice about prospects on the horizon such as pending grant applications and proposed capital campaigns. And development 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 the financial statements.
Regular meetings also give the two departments an opportunity to resolve any issues related to reconciling different sets of financial figures.
A two-way road
The activities of the accounting and development departments directly affect each other, so careful coordination is essential. Taking the steps described above should make it easier for employees with different processes to work together to help their organization fulfill its mission. For more information contact your MarksNelson professional.