Communication breakdowns between your not-for-profit’s development and accounting departments can lead to confusion, embarrassment and even financial problems. Here are three tips for facilitating collaboration between these two critical functions:
1. Understand differences
Accounting and development typically record their financial information differently, which is why they can produce numbers that vary but are also both correct. Your development department likely uses a cash basis of accounting, while the accounting department probably records contributions, grants, donations and pledges in accordance with Generally Accepted Accounting Principles (GAAP).
So if a donor makes a $10,000 contribution in April 2016 on a pledge made in December 2015, development will enter the amount as a receipt in its donor database in April. But accounting will record the payment against the pledge receivable that was recorded as revenue in December. Receipt of the check won’t result in any new revenue in April because accounting has already recorded it. Both departments’ figures for April 2016 (and December 2015) will be accurate, but they won’t agree with each other. Similar disparities can arise with grants.
2. Establish policies and procedures
Because failure to communicate can have negative consequences, the departments need clear protocols for relating important activity. If, for example, development neglects to inform accounting about grants on a timely basis, accounting won’t be aware of the grants’ financial reporting requirements and your nonprofit could possibly forfeit the funds. And if accounting doesn’t record pledges in the proper financial period according to GAAP, you could run into significant issues during an audit — which could also jeopardize funding.
3. Require regular meetings
The stakes are too high to leave communication informal. Initially, accounting staffers can use formal meetings to educate development employees about the information it needs, when it needs it and the consequences of not receiving it. Development can use meetings to inform accounting about prospects on the horizon, such as pending grant applications and proposed capital campaigns.
Accounting and development department activities are inextricably linked, so careful coordination is essential. Contact us for more information about how accounting affects your entire organization.