Top 10 Most Common Problems with Nonprofit’s Bookkeeping

What’s so special about nonprofit bookkeeping? Do you really need a nonprofit specialist?  Absolutely!

The infamous 990 Tax Form means the IRS has a whole special set of rules for nonprofits in order to maintain their status. Great bookkeeping can also mean better planning, more donations, and less stress and expense when filing your 990.

Even small nonprofits and schools need specialized bookkeeping, like separating funds for current and future years, tracking expenses by program, or monitoring how much they spend on fundraising. All of these require a unique set of skills, and knowledge of specific advanced QuickBooks functions, that most bookkeepers just never mastered.

Here are some of the most common mistakes I’ve come across in my time as a nonprofit bookkeeper:

  1. Not tracking by class-I’ve seen non-specialists come up with some very creative ways to track different programs or funds in QuickBooks. Unfortunately, these ad-hoc systems can create problems, like posting expenses to the income account, or not being able to reconcile bank accounts. Almost all nonprofits, even little ones, must track by class!
  2. Not using the correct financial statements-Nonprofits receive their own unique set of financial statements different than those used in for profit companies. We provide our clients with monthly reports that includes a set of nonprofit financial statements, additional reports applicable to their organization, as well as important notes and observations for the month. Plus,we’re always available for a follow up phone call to discuss the monthly report and any questions you may have.
  3. Not tailoring the chart of accounts to the budget– Nonprofits live or die by their budget, and tracking it can be easy when the Quickbooks chart of accounts is designed to match the budget
  4. Not tailoring bookkeeping for the 990 – Oh that infamous 990, the tax form most nonprofits are required to file every year, and that scares so many accountants! Save money and time at tax time by having books that match the requirements of the 990, like tracking by functional expense (how much did you spend on programs, vs on fundraising and management?).
  5. Not having a good system for tracking donors-With the right QuickBooks features and apps, you can easily track donors and send end of year donor receipts that are IRS compliant in just a few mouse clicks!
  6. Not knowing the specific rules of nonprofits– Not all nonprofits are 501c3’s and not all have the same tax rules. Many nonprofits don’t understand that certain ways of raising revenue may accidentally qualify as unrelated business income, or that giving volunteers gift cards may accidentally make them employees with required tax withholding. Some nonprofits are not required to pay Federal Unemployment Taxes and many religious organizations ares not required to file 990’s, but all must pay payroll taxes! Does your bookkeeper know the ins and outs of all the rules regarding nonprofits? It’a s lot to keep track of but you need good people on your side. Not knowing these rules can cost your organization money and at worst, even risk tax-exempt status.
  7. Not taking advantage of Technology-From CRM to donor management systems, to time tracking for employees, a great bookkeeper knows the best technology and how to integrate it into your QuickBooks account. Great technology makes your data more secure, improves internal controls, and makes your organization work more efficiently from top to bottom. At Mosaic Bookkeeping we’re active in several nonprofit accounting networks and always stay up-to-date on the new technology to benefit our clients, even if it’s not bookkeeping related. We’re happy to share our expertise and what our other clients have tried and liked!
  8. Needing help with HR & Business filings-At Mosaic bookkeeping, we provide concierge level service. We’re not a large company, each of our clients is important to us. We develop close relationships with our nonprofits and are here for anything you need. Some of the services we’ve provided include: putting together benefits packages, reimbursing employees for healthcare premiums, hiring new employees, and updating organization names and addresses. Our concierge level service means we’re here to help you with everything, and our great network of nonprofit professionals means we know where to refer you when you need a specialist
  9. Not staying IRS compliant with receipts- All of our clients receive a free subscription to Receipt Bank so that they can easily snap a picture or email a copy of their receipts. All receipts are saved in Receipt Bank and attached in QuickBooks to the individual transaction so that expenses are backed up and compliant with IRS requirements. We also utilize other software programs like Expenisfy and Gusto Payroll for expense tracking.
  10. Thinking they’re too small to have good bookkeeping- Nonprofits often have strict budgets with razor-thin margin. Many think their books are simple and that bookkeeping is too costly for them. But lacking great bookkeeping is much more costly in the long run. Many donors want to see financial statements and without good bookkeeping and 990’s, you won’t be eligible for those larger donations. Good bookkeeping can also prevent and protect you from audits, fines, or the risk of losing your tax-exempt status. If you feel your organization is too small to hire a full time bookkeeper, consider our training packages and monthly check-in services so that you get started on the right foot and don’t have to pay for costly clean-ups down the line.