The partnership and good communication between the Finance and Development departments of nonprofit organizations are key to the successful, accurate, and timely financial reporting to stakeholders. Frequently, these two teams are asked to explain the differences in their numbers not only to the Executive Director, but also to the Board of Directors or to the Finance Committee. In addition, many more auditors are requiring the reconciliation between these two departments if two different systems are maintained to book and report cash receipts and pledges. If proper procedures are not in place, the auditor may make note of internal control weaknesses in the Management Letter comments.
It is essential to have a basic understanding of the departments’ different reporting distinctions and reconcile the numbers regularly.
The Finance department books revenue based on General Accepted Accounting Principles (GAAP). This means that a pledge commitment is booked at the time a donor provides a ‘promise to give’ in writing and before the actual payment is received. The Development department might report on Fiscal Year-To-Date cash receipts, and/or also include ‘verbal’ commitments. Similarly, grants may have specific terms, restrictions, and conditions that impede Finance from booking the cash payment until the condition is met, and Development counts the cash or pledge as soon as it is received.
Either way of tracking revenue and cash receipts is acceptable depending on the department needs, audience, or stakeholder expectations; however, organizations also need to ensure data integrity and quality control, while understanding and noting the main differences.
Here are some important next steps to consider if the above is a challenge you are familiar with:
Finance and Development departments should communicate regularly about misunderstandings or issues and collaborate to address them
Develop clear policies and procedures and provide training to the departments so they understand the various types of contributions and revenue and how they are booked
Ensure there is a mapping of the revenue accounts. If departments use both an accounting system and a Customer Relationship Management system (CRM), both systems should have the same account number for each of their revenue distinctions. Your CRM becomes the subsidiary ledger of the accounting system, which is best practice.
Reconcile cash and pledges using the above mapping, noting the differences, at minimum monthly.
Once the above is in place and working well, inefficiencies and double/manual entry by both departments should be addressed by uploading donor gifts information from the CRM to the accounting system.
Finally, and if possible, put an Automatic Programming Interface (API) in place to sync both systems automatically and regularly.
Open and timely communication is the first step to address concerns or questions related to unreconciled revenue and cash receipts. Reconciling Finance and Development numbers, as well as integrating your CRM with the accounting system, will not only reduce errors, manual entries, and double efforts, but it will also help you maintain proper control over your data, have a common understanding of the numbers and differences, and promote collaboration across functions and teams.
The Kiwi Consulting team can support your reconciliation and data integration efforts. Contact us for more information.