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We started our accounting series on October 1st with an overview of how to analyze a nonprofit's financial statements by preparing ratios that assess its financial health. Based on those measurements, a budget is prepared, a 'lean budget' using the element of zero-based analysis to trim down any unnecessary and unreasonable expenses. With a budget, there is a set starting point. It is at this point where there is a need to use what we call a proverbial compass 🧭: accounting controls.
What are accounting controls?
Accounting controls, based on work by experts in the accounting field, are methods of assigning responsibility and procedure preparation and implementation as a way to achieve budget and assurance goals. They are prepared by leadership as a standard, however, our approach is to include all stakeholders from leadership to operation staff to board members so that all inputs are gathered and made available for procedure development.
Accounting controls are most effective when all inputs have been compiled from all parties involved in the process of transactions related to the final results in the financial statements. Recognition that the entire body of an organization and all its inputs have an effect on the financial results can have a powerful influence on inspiring more involvement at all levels of the nonprofit in accounting control and procedure development.
Why are accounting controls important?
In the worst-case scenario, a lack of accounting controls can cause disorganized records, information to be eschewed, data to have material misstatement, operations to run haphazardly, information exchange to be poor at best, collaboration to go to the wayside, and morale will plummet, duplication of tasks, responsibility, work efforts to run rampant throughout, cash flow to dry up, and eventually can cause operations to cease altogether. This is not a pretty picture nor a result we want any nonprofit to experience. However, this could be the picture of any organization that does not put effective accounting controls in place.
Effective accounting controls are the type of accounting controls that include the entire organization as a unit being included in the development process and staying true to the development of the controls while making necessary adjustments along the way. This type of accounting controls will ensure solid cash flow management, peach of mind of staff and leadership, continuous improvement of organization-wide morale, elimination of duplicate work and repetition, and increase of operation flow and growth.
How do you develop accounting controls?
The development of accounting controls is the topic of our next live discussion where we will provide even more of an overview of what their development entails. In the meantime, we will refer to several elements within our blog to add more clarity to this demonstrably important activity in nonprofit management.
Let us share with you the elements needed to begin the development of masterful accounting controls. They are:
☝️ Accounting assurance areas
☝️ Accounting control areas
☝️ Accounting principles
☝️ Accounting risk control factors
We will discuss each of these elements in detail in this blog over the next week. They will also be highlighted in our live discussion next Thursday, October 22, 2020 (click here to subscribe and select notify for next week's episode).
How can we help you apply these concepts into practice right now?
We are here for you for standard operation development and month-end closing procedures preparation and implementation. These are just two of the ways that we assist our nonprofit organizations and we can do the same for you or the nonprofit that you support.
Get to know us through this blog or by visiting our website to review our full list of services and products including FREE resources that can help you get the "strategic bug" working for your organization's growth right away.
About our website:
👀 Visit our "Analysis" section, find out how your nonprofit measures against one ratio that provides great insight into how the public views how your organization is managed
🤟 Visit our "Products" section, find several FREE resources related to strategic recordkeeping for checks and donations, and more
🤲 Visit our "Services" section, download our full list of accounting, bookkeeping services, and more, along with work scopes and pricing
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We want you to grow, and to grow abundantly with masterful, expert-made, results-proven, workable practices for: Your NFP Ship. Your NFP Compass. Your NFP Path w/Lenore, Inc.