Posts tagged with "financial policies and procedures"

FTM Nonprofit Forum on July 29, 2020 – Best Practices for Financial Policies and Procedures

The board and finance committee’s responsibility includes that financial policies and procedures exist and are followed by the organization. Management has usually delegated the responsibility to develop and maintain financial policies and procedures with little direction or guidance from the board and finance committee. The board and finance committee is usually consumed by other financial matters like budgets, audits, financial statements, and cash flow.

Financial Policies and procedures help sustain and strengthen your organization by providing the following to your organization:
• How the accounting function is performed including transaction processing like accounts payable, account receivable, payroll, journal entries, and grants and program management?
• What authorization and custody controls exist to reduce financial risks and protect the organization?
• What environment and culture exist for your organization, how is authority defined, and what external influences exist?
• How does your accounting system help you implement your financial policies and procedures?
• What segregation of duties and controls exists to detect or prevent accidental or intentional mistakes?
• What training do you provide to ensure competence and knowledge of accounting staff?

It is important for your major transaction processing like accounts payable, accounts receivable, payroll, and general ledger transactions that you evaluate best practices. This is important as you need to evaluate costs versus benefits received for each transaction process.

If it has been a while since you reviewed and improved your financial policies and procedures, we can help you develop and update your financial policies and procedures. An organization with good financial policies and procedures benefits from operating efficiencies, clear expectations,  and financial accountability.

Best Practices for Financial Policies and Procedures

It is important that Nonprofit Organizations have a financial policies and procedures manual.

If you have not updated your financial policies in a while or don’t have a financial policies and procedures manual, our firm can help you develop or update your financial policies and procedures. An organization with good financial policies and procedures benefits from operating efficiencies, clear expectations, financial accountability, and training.

A financial policies and procedures manual is important for the following reasons:

  • Improving your operation
  • Document bookkeeping
  • Document control environment
  • Document control procedures
  • Document accounting system.
  • Lay out clear expectations
  • Grant compliance
  • Staff training

The financial policies and procedures manual should improve your operation by documenting policies, processes, and procedures to encourage timely and accurate information. A manual can minimize resource drain and fraud areas by improving and automating systems and processes.  The manual can serve as a checklist for major financial activities that need to occur within the finance function. The manual can serve as communication and training for finance staff and others within the organization. The manual should be updated to reflect your accounting system and software and how it supports the organization.

The manual should document your bookkeeping. The bookkeeping should document what is required source documentation to support the required accounting. The bookkeeping should document how the accounting system and software is to be used and maintained. The bookkeeping needs to discuss and implement an effective filing system.

The manual should document your control environment. Your control environment includes the following:

  • Organization Structure
  • Philosophy and Operating Style-Tone from the Top
  • Personnel Policies and Procedures
  • External Influences
  • Board, Finance, and Audit Committee Oversight
  • Authority Defined
  • Performance Monitoring and Follow Up-Monitoring Controls

The manual should document your accounting system. Your accounting system should do the following:

  • Record Transactions
  • Record Timely and Accurate Information
  • Proper Period Reporting
  • Disclose Accounting Events
  • Involve Program Staff
  • Maintain Audit Trail

The manual should lay out clear expectations, ensure grant compliance, and provide staff and program training. The policies need to document board and staff responsibility and accountability, segregation of duties, safeguarding assets, personnel integrity and competence, and inherent limitations.

We need to ask the following key questions for control procedures: what errors or irregularities could occur? What procedures would prevent or detect such errors or irregularities? Are controls procedures in place and effective? We would suggest you review each of the major finance areas to include cash receipts, cash disbursements, and payroll.

We would like to suggest the following areas are essential policies.

  • Cash Receipts and Revenues
  • Billing, Accounts Receivable, and Grants Management
  • Cash Disbursements and Expenditures
  • Purchasing, Accounts Payable, Travel, Credit Cards, and Debit Cards
  • Payroll and Human Resources
  • Audit
  • Budget
  • Financial Reports
  • Record Retention and Destruction

We would suggest the following areas as optional policies

  • Board, Finance, and Audit Committees
  • Governance Policies including Conflicts of Interest, Whistleblower, Gift Acceptance, and Code of Conduct.
  • Other policies would include a chart of accounts, general ledger, and technology

It is important that you take the time to document your financial policies and procedures. The purpose of this knowledge article is to develop or improve your current manual with these best practices for financial policies and procedures.

You can download a FREE Sample Nonprofit Organization Financial Policies and Procedures Manual from our resource documents page.

 

 

12 Characteristics of Financially Healthy Nonprofits

12 Characteristics of Financially Healthy Nonprofits

Every director and board member of a nonprofit would like to have a large endowment, reserve cash in the bank, and a surplus at the end of every year. Unfortunately, most of us know that this might be a dream instead of reality. Without these tangible signs of financial strength, how can you know if your organization is financially healthy?

Financial health is about more than just reserves and endowment balances. Having a large budget or complex accounting system doesn’t always result in good management and longterm success. Just as our personal health depends on our behavior, so the financial health of a nonprofit depends on management behavior – policies and practices.

Even though there may be occasional deficits, or periods of tight cash flow, the following character- istics are good signs that your organization will be financially healthy over the long-term.

  1. Board of directors and management hold themselves responsible for long-term stability in both programs and financial performance.
  2. Board members understand their roles and responsibilities in financial matters.
  3. A realistic and well-considered budget is prepared and approved by the board.
  4. Budgets are prepared in tandem with planning for programs and operating needs.
  5. Management and board are committed to managing with the goal of an operating surplus each year.
  6. Consistent, accurate, and timely financial reports are prepared and analyzed by qualified individuals.
  7. Management and board monitor financial results as compared to the budget and modify programs and activities in response to variances.
  8. Management realistically plans and monitors cash flow so as to be able to meet obligations.
  9. Financial policies are in place that establish, or have specific plans to establish, an operating reserve to finance cash shortfalls and program growth.
  10. Policies are established for major financial decisions and adequate and appropriate internal controls.
  11. Management is committed to compliance with all required legal and funder reporting.
  12. The board and management regularly review short-term and long-term plans and develop goals and strategies for the future.

It is important that you strive to achieve each of these characteristics to insure your organization’s financial health and long-term sustainability.

Please let us know if we can help you improve in any of these areas.

Year End is the ideal time to document your financial policies and procedures

We have discovered that around fiscal year end might be the best time to document your financial policies and procedures.  We are usually preparing and implementing budgets and starting our audit preparation so we are usually in the planning and reviewing mode.

You can document your financial processes and see where you can make improvements.  You can look to see where you can implement new software and automate systems to reduce manual processes.

The written policies should document board and staff responsibilities and related segregation of duties.   You should consider what errors or irregularities could occur and what procedures would detect these errors or irregularities.  You should focus around cash disbursement, cash receipt, and payroll controls at a minimum.

Your financial policies and procedures should lay out clear expectations and encourage adherence.  Your financial policies and procedure manual should include audit, budget, and record retention policies.  Please contact us if we can help you document your financial polices and procedures.