About Not-for-Profit Financial Policies
Though not for profit organizations are not required to operate their finances in a specific manner, the Internal Revenue Service does have reporting requirements as well as accounting standards that must be followed. Failure to comply with these requirements could jeopardize not for profit status.
If your organization has nonprofit status, make sure you pay special attention to ensuring that you operate in full compliance.
General Policies and Procedures
These should include the accounting structure for the organization. A properly structured accounting group will help address potential conflicts of interest and fraud. Those charged with running this group should be highly qualified and detail oriented individuals capable of maintaining and updating general ledgers, charts of accounts, and other financial data. As financial data tends to include personal information of donors, appropriate technology equipped with stringent security measures should also be in place.
Processing Revenue
Those who donate cash or material items to not for profit organizations, enjoy a tax deduction from the Internal Revenue Service. Part of the organization’s year-end processing of receipts includes ensuring that records for each of these contributions is properly accounted for. If the organization or the individual is ever audited, it is important that these records are thorough.
Purchasing and Cash Payouts
Not-for-profit organizations that pad employee salaries and practice crony capitalism often end up in tax trouble. It is important to be able to track purchasing and payouts. These transactions could include employee travel and business expenses, payroll, and payment to vendors for services rendered.
Financial Management
Every organization should have budgeting in place for each fiscal year, and measures available to reign in spending as needed. Many nonprofit organizations build in accountability by creating a board of directors. The board would typically have to approve budgets, major expenses and potentially employee bonuses. The size of the board as well as the number of “aye” votes needed to do regular business should all be considered when establishing the organization charter.