Should Your Organization Have an Accounting Policies & Procedures Manual?

 

By Bob Swetz
Controller Consultant | Tier One Services, LLC
Yes, and thank you for reading.
Well, I suppose you know where I stand on this, but let me expand a bit. This topic can be broken into 2 groups, both with the same outcome but perhaps for different reasons.
You have a small organization with a 1-person accounting department
This group might be leaning towards a NO answer, but that couldn’t be farther from the truth. A small organization with a 1-person accounting department should have a manual that documents their policies and procedures for continuity if nothing else. When all of the processing steps are in this one person’s head, what happens if they leave suddenly, get sick or are off for an extended period of time? I’ll tell you what happens if there is no documentation, mass chaos. On the other hand, if the policies and procedures are in a written document, the owner, manager or director can pick up right where the other person left off. There may be a bit of a learning curve, but at least there is a good starting point.
You have a large organization with a multi-person accounting department
This group is probably leaning towards a YES answer, but why? The general perception is that a larger organization is a bit more rigid in terms of their policies and procedures and would most likely have them in a written document. This document is critical for such an organization for several reasons. To name a few…
1.      There is a tendency to move staff from one position to another
2.      There can sometimes be high turnover
3.      With many hands in the cookie jar it is important to know who is doing what
The accounting policies & procedures document will help ensure a smooth transition from one position to another, a smooth intake for new employees and protection for staff when errors or irregularities occur.
Once you get on board with the need for such a document you will also realize the importance of keeping the manual updated on a regular basis, at least once or twice a year.
If you have questions or want to dig deeper, feel free to schedule a 15-minute troubleshooting session with me at http://bit.ly/Scheduling_Troubleshooting or connect with me on Facebook at https://www.facebook.com/bobswetzonline.

Should I Seek a Fiscal Sponsor?

A fiscal sponsor is an organization that has already gone to the time, trouble, and expense to legally form a nonprofit, create a board, establish accounting records, establish operations, establish bylaws – all the admin stuff –

And when you do your fundraising, you have people donate to the sponsoring organization with those funds earmarked for your project.

That’s how their donations become eligible for being tax-deductible and also how donors have the experience of donating to a “legit” and accountable organization.

Then the fiscal sponsor passes the funds to you, minus an administrative fee. Amounts for this fee that I have heard are 6% and 10%. There could be other fee levels. It depends in part on what the organization is doing for you. The more they do (such as pay your vendors) the higher the fee.

A fiscal sponsor can either pay your authorized vendors directly or put the donated funds (less the admin fee) into a separate bank account that you have created for the exclusive use of this project. You’re required to report all of your project’s financial activities to your fiscal sponsor and you can get into h-u-g-e trouble if any of those funds are used for a purpose other than what was promised in your initial application for fiscal sponsorship.

A fiscal sponsor is obligated to report to you how much money has come in, and they are required to set aside those donations (less the admin fee) and they can get into h-u-g-e trouble if they use those funds for anything other than your project.

Fiscal sponsorship is an effective financial mechanism for good to be done in the world without red tape.

How to Segregate Duties with Only One Accountant

By Bob Swetz
Controller Consultant | Tier One Services, LLC
“Every business needs to be protected in order to survive and thrive.”
Part 2 of 3

What is segregation of duties and why is it important?
In Part 1 of my series on segregation of duties we explored why it is so important to have adequate segregation of duties in your organization’s accounting department. You can read about that in my article Why is Segregation of Duties Important in Your Accounting Department?
In today’s article, I provide an example of how you can achieve segregation of duties even if your accounting department has only one accountant.

How to make segregation of duties work with only one accountant
If your organization has only one accountant who does everything it may be time for the owner, manager or director to step up and pitch in to split some of the duties with the accountant or bookkeeper.

Let’s look at the bill payment function and assume that there is one accountant and an executive director as the next level of management. To start, don’t let the accountant open the mail. The director should open the mail and give the vendor bills to the accountant to enter. Once the bills are entered, the director can review them and approve which ones to print. It would be ok for the accountant to print the checks, then have the secretary match the checks up with invoices and seal the envelopes.

 

Next, the director can review which bills are ready to go out before returning them to the secretary for mailing. Ideally, borrow and train a staff member from another department to do the bank reconciliations. If your staff is too busy for an arrangement like this, consider outsourcing some of these duties to an outside accountant or bookkeeper. It’s just that important.

In Part 3 of my series on segregation of duties, How to Segregate Duties with Two or More Accountants, I will explore another example of how to make this vital control feature work for your organization.

Why is Segregation of Duties Important in My Accounting Department?


Part 1 of 3
By Bob Swetz
Controller Consultant | Tier One Services, LLC
“Every business needs to be protected in order to survive and thrive.”

What is segregation of duties?
Segregation of duties is the concept of splitting key duties within the same accounting function among multiple personnel. For example, printing, checks and signing checks are in the same accounting function. Ideally, these duties should be performed by separate staff members.

Why is it important?
Allowing the same staff member to perform all or most of the duties in the same function creates an opportunity for that person to cover up improprieties. Let’s take the case referred to above and say that one staff accountant enters vendor bills, writes the checks for those bills, mails them and then to top it off does the bank reconciliation. That staff member could easily write checks to themselves, cash the checks and mark them as cleared in the bank reconciliation without anyone ever knowing about it.
It’s important to remember that controls such as adequate segregation of duties are not intended to point fingers or suggest someone is doing something wrong, they are just good business practice to safeguard the organization’s assets.

I have a small accounting department, so what can I do?
Creating and maintaining adequate segregation of duties is probably the most difficult control challenge a small organization faces. Check out how to face this challenge with a one-person accounting department in Part 2 of my series, How to Segregate Duties with Only One Accountant.

How to Consolidate Financial Statements from Multiple QuickBooks Files

 

Two ways to consolidate are:

EXCEL TRIAL BALANCES

[1] Export all trial balances to Excel, position them on the same tab but each below the previous one, tag add a column to tag each account with the entity name, combine the DR and CR into one DR (CR) column.
[2] Create your financial statements with your desired accounts and headings
[3] On your tab with the trial balances, create a column called Balance Sheet and assign a B/S account from your B/S page by linking to it…for all line items. Add another column for Income Statement Accounts.
Be sure to skip all intercompany accounts.
[4] On your financials, use the SUMIF function to pull from the columns on the T/B tab using your mapping.

Pros: You can easy-to-update, professional-looking consolidated financials.
Con: It takes a while to set up the first time.

 

QUICKBOOKS ENTERPRISE

[1] Make sure the Charts of Accounts are identical across all 3 entities for any accounts that you wish to consolidate. Account number, spelling, parent/sub status.
[2] Also make sure that any intercompany accounts are all on the same line, i.e. if you have an asset in one and a liability in the other, change one of them to an asset before consolidating.
[3] Use the tool in the Reports menu to consolidate.

Pro: Doesn’t take a lot of time.
Cons: You have to set up those intercompany accounts each time so they get zeroed out, and you end up with consolidated financials that are in Excel and are very cheesy-looking.

Is it worth it to track inventory quantities, not just dollars?

 

How much money do you stand ready to make & keep from this data?
Uses of quantity-specific inventory information include:
* prevention & detection of theft and loss
* guard against being overcharged by the supplier
* highest ROI on giving of samples
* shaping of messaging & promotion strategy to focus on highest-margin products, not just highest or lowest sale price
* cash flow management from clarity on reorder points so disbursements aren’t accelerated, or on the other end of the spectrum, she isn’t left without product when a customer needs it
* prevention of losses when she has too much of a non-selling or slow-moving product and has to let it go at a fire sale
* once her business is large enough such that she has to file on the accrual basis, you can help her to make sure she’s not paying too much in income taxes (or too little and then pay extra for it later with money and time)
* assist in setting sales targets & plans for achieving those targets
Track.
Profit.
Repeat.

How can a startup nonprofit create a budget needed to apply for its first grant?

 

A budget isn’t a guarantee. It’s a plan, a target.
Just because your nonprofit is a startup doesn’t mean you can’t have a budget.
Even for long-running nonprofits, no one can say what the future is. You don’t have to have guaranteed revenues in order to have a budget.
As you learn more about what revenue streams are available to you and what is available for your mission as a result, consider designing a target revenue portfolio.
Consider how some revenue sources come with rules about how to use the money (i.e. grants) and some don’t (individual contributions). Consider that come with easily definable costs (i.e. product sales) and some have costs that are less easily definable (i.e. sponsorships).
Use that information to shape up the expense side of your budget that corresponds to your revenue portfolio.
Then you’ll have your budget.

Accepting a Payment Plan from a Donor or Customer

 

If you accept a payment plan in any situation for any reason, bear in mind that risk is something you can play with and not just be subject to.
A payment plan introduces risk into the equation, because it’s replacing a certainty with an uncertainty.
So if you do ever accept a payment plan, propose terms that then reduce your organization’s uncertainty and/or compensate for the additional uncertainty.
Examples:
* AutoPay only
* Weekly payments, not monthly payments
* Pull from their bank account instead of the credit card account – lower fees for your organization – and only pull from the cc account if the bank account pull bounces, and of course if so then include that fee to get reimbursed plus a surcharge to cover the cc fees (check your state’s laws on this).
* Charge a financing fee
In my experience, a lot of organizations suffer for lack of training about how to identify and counter financial risks. My life certainly suffered for it. I did what I knew…and when I knew better, I did better.

Giving a Workshop? How to Short Yourself in One Easy Step

 

Pricing your workshop by using your materials cost as a point of comparison is an approach that is likely to leave money on the table and keep yet another entrepreneur playing small-time by default, all for lack of design.
Long ago, I made the mistake of using my costs as a determining factor for my price point. I practically gave away my product because my materials cost was tiny…but my expertise was exceptional.
Consider the following:
Charge what the market will bear.
See what other people in the area have charged for similar workshops. If it’s more than you were contemplating, yippee! Charge market rates if your audience is the same and your value proposition is the same.
Be aware of who you’re attracting to your workshop and what’s in it for them so you can decide who you want to attract and put together language accordingly.
When you attract people to your workshop who stand to make a financial gain (make or save money) by coming to your workshop, this can drive up the price.
When you attract people to your workshop who stand to save time by coming, then if the opportunity cost of their time is worth anything, this can drive up the price.
Your opportunity here is to decide who your audience is and then tailor your workshop message to help them realize the real value that’s on offer.
Take into account the relationship of risk to price.
The lower the risk for the attendee, the higher the price can be. There are many ways to lower risk, such as guarantees. If you want a list, I can start a list.
Take into account the social value of the event and the relationship to price.
Price something at $10 and you’ll attract people who are willing to pay $10. Nothing wrong with that. But you’ll have to generate a lot more volume to cover your house nut, much less create a real profit. If you’re a volume-generating machine and you want to make the results of a $10 workshop available to many people, go for it.
However, don’t believe that this is your only option.
Price the same thing at $5,000 (and have the value proposition aligned with that) and you’ll attract people who want to be in the same room as other people who can pay $5,000 for a workshop.
My point is that you can design how this goes and not assume that it has to be a certain way.

“Compensating” Volunteers in Your Not-For-Profit Organization

Volunteers have their own reasons for devoting their time to your organization. If you’d like to offer them some perks but need to watch the cost of those perks, watch out.
If you have someone in charge of volunteers, it can be tempting for that person to start creating a lot of rules around those perks. Although some people will do this for a power trip or because that’s the only example they know, most people do it out of a well-intentioned desire to keep costs low for the organization.
However, beware: This will chase away volunteers, guaranteed. Don’t overcomplicate and overadminister something that is a huge arbitrage opportunity.
If your organization provides meals, for example, giving a free meal and beverage is a tiny price to pay for the labor required to make it all happen. Tiny. There’s your arbitrage, turning a tiny financial cost into a huge benefit. Don’t go making rules about which food they can eat or how many cups of coffee they can drink.
Find other ways to increase revenues and reduce costs. When reducing costs, choose expenditures with the greatest financial impact and the least benefit impact.
Start by looking at your financial statements for the greatest cost areas.
Typical cost areas that are worth looking at include:
* office supplies
* leases
* number of users for a technology subscription
* memberships that aren’t being utilized
* items that get renewed automatically on a monthly or annual basis
* insurances
* penalties being paid for being out of compliance
* bank fees
* costs related to having everything on paper instead of paperless back-office operations
* income tax preparation and/or independent audit services – can cost less if your internal staff does work that doesn’t require correcting by the tax preparer and/or auditor (who typically cost more)
* any outside services for which you are paying someone hourly – this is a misalignment of the service provider’s interests with your organization’s interests
* lost opportunities to get not-for-profit rates on technology, products, and services
Which areas might be available to help your not-for-profit save some money this budget cycle?