Nonprofit Bookkeeping Questions: Real World Answers
By: Joseph Scarano
Tags: Bookkeeping, Nonprofit, Accounting

Changing Fiscal Year

Question: Our nonprofit organization is considering a Fiscal Year change from Sep 1 — Aug 30 to July 1 — June 30, to better align with financial accounting quarters (and also because 7/1 is a standard FY start for many orgs). Are there unintended negative impacts of this change that we should be aware of? Would love to hear about pros/cons between 7/1 vs. 1/1, cautionary tales, etc. Thanks!

Answer: If your primary funding sources have a 06/30 year end, it is advantageous to switch for fiscal year end to align with your funding sources. The only caveat to that switch is you will have to file year and reports for a 10 month period of September — June when you make the switch.

PPP Loans and Restricted Funds

Question: I do the bookkeeping for an affordable after-school and summer child care program. Their main sources of income are from these programs as well as fundraising events. They had to close the program for a while and opened back up with limited numbers. They also had to cancel all events, therefore their unrestricted income was down about 46% on average last year (it even ranged up to 73% in one quarter that they were down). They got the first round of PPP loans and id like to go for the second. The question I have is if restricted income is considered in PPP round 2 or if it is excluded? They also started up a coronavirus impact fund with a whole separate committee under the 501c3 that they put on with a local homeless prevention council and those funds make them WAY up to 2019. Something like 200% up I think but they can’t take that money and use for payroll.

Answer: The second round of the PPP loan would first be classified as a Liability until the loan is forgiven. It is not income, until it is forgiven. You must make sure you properly categorize your expenses incurred for salaries, rent and utilities as being PPP expenses for applying for loan forgiveness. Once the loan is forgiven, then it would be classified as unrestricted income.

The funds raised from the Coronavirus Impact Fund must be used for the designated purpose as outlined by the committee. If the funds raised are for general operations to supplement lost revenue because of COVID, then they can apply the revenue against program expenses.

Fixing Inefficient Check Deposit Procedure

Question: I am so frustrated with procedures we have for depositing checks. The CEO hoards the checks, then every week he enters each check, number, amount, GL code on an excel spreadsheet, gives it to the office manager to bring to the bank to deposit, then she gives it to me to enter into QB. It makes NO sense. CEO says we need to this for audit purposes, but using an excel spreadsheet?? Why?? It’s not a true backup when everything should tie out to QB, NOT EXCEL. And this separation of duties things leads to so many f-ups. Like donors payments not being recorded properly and we look like idiots asking for proof of payment. I just don’t understand why this basic bookkeeping procedure is done by 3 people.

Similar issues with bills. CEO hoards the bills so I can’t even enter them into AP. He checks each bill to see if we’ve made any Payments and circles what he wants me to pay. I just don’t get it, I’ve been doing AP for 20 years. I know how to check to make sure we’re not making overpayments.

Answer: There is no easy solution to your problem, since the problem is the CEO. His procedures are not because of internal controls, it is more of his wanting personal control. I would suggest writing up proper internal control procedures for processing cash receipts and vendor invoices and try to diplomatically approach the CEO to try to implement these procedures. It would also help if you had an independent, outside auditor back you up on your concerns.

Cash Accrual: Accounts Receivable vs Pledges Receivable

Question: I’m really confused. This nonprofit works on a cash basis but lately there have been a few times that I have to enter in invoices. I just noticed that half of them went in AR and half went in Pledges Receivable. Why would this happen (as opposed to just one or the other)? When I create the invoice I just enter the service item which eventually links to the right income account. Where is this “middle man” account chosen? Thanks! we’ve made any Payments and circles what he wants me to pay. I just don’t get it, I’ve been doing AP for 20 years. I know how to check to make sure we’re not making overpayments.

Answer: Postings to Accounts Receivable should be restricted to receivables for program services, or grants. Postings to Pledge Receivables should be restricted to pledges for charitable contributions. I have no idea what you mean by ‘middle man.’

Bottom Line

In the normal course of performing nonprofit bookkeeping tasks, you may have encountered some of these issues. It is good practice to consult a nonprofit accounting pro to determine the best course of action to prevent costly errors.