7 important tips for nonprofits approaching fiscal year end
By David J. Manbeck
But some organizations focus so much on the mission that they neglect the “taking-care-of-business” side of running a nonprofit. If they’re not careful, that inattention could suddenly become a roadblock to accomplishing important charitable goals.
As the end of the fiscal year approaches, here are seven tips every nonprofit should review to ensure they – and those counting on their help – are not headed for an unpleasant surprise.
- Invest in a financial professional.
I once worked with an agency whose chief financial officer continually assured his board that the organization was at least breaking even. At the end of the year, the board was shocked to learn the nonprofit’s finances were significantly “in the red” … and the CFO was gone.
Sometimes nonprofits, needing to cut costs, see the back office as a place to save money. But every organization, even those with an in-house CFO, needs an unbiased financial pro who can advise on ways to stay on budget and avoid financial fiascos.
- Keep the IRS informed of any changes to the mission.
A nonprofit may start out providing a particular service and then see other areas where it can help. That’s not a problem as long as leadership remembers to update the IRS charitable registration. Perhaps an organization formed to provide meals to the homeless adds an after-school program. Failure to account for the new program with the IRS could mean the charity must pay business tax on any income. Or, if the income is reported as exempt, the nonprofit could risk losing its tax-exempt status.
- Stay up-to-date on accounting standards.
Leadership must be aware of new accounting pronouncements that may require managing or tracking data in a different way, such as updating documentation or reorganizing the chart of accounts. Accounting personnel may need additional training or information to implement the new requirements.
- Deadlines matter.
While they can be easy to forget in the midst of everything else going on, overlooking tax filing deadlines can mean dire consequences. For example:
- Nonprofits may miss the end-of-the-fiscal-year deadline to file their Form 990, despite repeated notices from the IRS, leading to interest payments and penalties.
- Banks that issue lines of credit may want to see an annual audit by a certain date and call the loan because of a missed reporting requirement.
Agencies typically face multiple deadlines throughout the year, all of which need to be tracked – and met − to avoid serious consequences.
- Review grants.
Nonprofits often rely on grants to provide necessary funding, expecting to receive the same grant year after year. To increase the likelihood of continued funding, an agency usually is required to provide progress reports or other documentation and use all the money initially received. Several individuals should regularly review a nonprofit’s grants to ensure programs are running as promised. People who are providing the services must work with the fiscal department to make sure all is in compliance.
- Let your budget be your guide.
Budgets are living documents that should be updated throughout the year so the organization always knows where it stands and where it needs to go. Nonprofits that start a year without a firm budget can get off track quickly – and the larger and more complex the nonprofit, the faster it can happen.
The organization’s leaders should plan early for significant expenditures, such as a new computer system, to make sure the purchase and other contingencies don’t strain the budget.
And, when putting together the next fiscal year budget, they must pay attention to recommendations made by their auditor, following the advice contained in the annual planning letter.
- Treat audit preparation as a yearlong process.
Proper planning and clear expectations will help to minimize anxiety and frustration during the annual audit. Nonprofit leadership should devote additional time throughout the year to adequately prepare for the audit, be available during audit fieldwork, and communicate with those involved in the audit process. Keeping schedules and reconciliations up-to-date yearlong reduces the time needed to prepare for the audit at the end of the year. And maintaining an open line of communication between the organization and the external auditors during the year, rather than waiting until the audit to discuss new or unusual transactions, minimizes surprises and allows the organization to make appropriate plans or necessary changes.
While it is crucial to meet all of the legal and financial requirements of running a nonprofit organization, leadership must never forget who makes the good work possible: the donors.
A simple thank you begins the process of letting donors know their generosity is vital to the success of the organization’s mission. Expressions of gratitude, both large and small, can turn mid-range donors into larger ones enabling the charity to do even more to help others.
David J. Manbeck is a principal, director at Boyer & Ritter, LLC and co-chairs the firm’s Not-For-Profit Services Group. He can be reached at 717-761-7210 or email@example.com