We are over halfway through 2022! Many people are looking around and asking, “Where did the year go?” As summer comes to a close, many nonprofit organizations are preparing to start their year-end closing process. Even though it signifies the completion of one fiscal year into another, the process is often dauting to begin, as it includes the completion of several different procedures and the approval of management and/or the board. Below are some suggestions of internal control improvements that an organization can implement to help make the year-end closing process run more efficiently.
Review Donor Restrictions Annually
Donor contributions with restrictions are contributions with donor-imposed restrictions. These restrictions can expire either by the passage of time or by the fulfillment of the stated restriction in the donor letter. Prior to recording the year-end total donor contributions with restrictions, each of these contributions should be reviewed to determine if the restrictions noted by the donor have been met.
Reconcile Donor Records to Accounting Records
Prior to recording the total year-end contributions, a reconciliation between the donation records (donor database) and the accounting records should be prepared. Once prepared, the reconciliation should be included in the year-end financial statement packet to be reviewed and approved by management prior to being presented to the board.
Review Monthly Bank Statements
During the year end reporting process, management should ensure that all bank statements and reconciliations for the fiscal year have been reviewed and approved. For control purposes, the review of the statements and reconciliations should be completed by someone other than the bookkeeper or person responsible for recording the monthly accounting transactions. This review should also include investment statements and any debt/line of credit accounts.
Review Monthly Financial Statement
Internal financial statements should be reviewed by the executive director and/or the board of directors prior to approval. In addition to the balance sheet and the profit and loss statement as of year-end, the internal financial statements can include a comparison of actual revenue and expense recorded to the approved budget, a breakout of any non-operating transactions which were considered outside of the organization’s control and a projection of cash flow/cash needs for the next fiscal year.
Create a Month-End and Year-End Closing Checklist
To ensure all necessary year-end processes and reviews have been completed, a year-end checklist should be created and filled out by management. The checklist should include all necessary year-end procedures such as recording final journal entries, account reconciliations, and preparation of internal financials. These should be initialed by the preparer and the reviewer at each step, and then reviewed by the executive director or the board.
For additional steps that can be implemented during the year to improve internal controls, see our previously published article. Please contact us if you have questions about the information outlined above, our seasoned and experienced nonprofit professionals are here to help. You can also learn more about our Nonprofit services by visiting our website.
About the Author
Erin joined McKonly & Asbury in 2017 and is currently a Manager with the firm. She is a member of the firm’s Audit & Assurance Segment, primarily working with clients in the healthcare, nonprofit, and affordable housing industrie… Read more