Rose Report: Issue 10
The Countdown to Year-End for Nonprofits
And unlike for-profit businesses, the fiscal year for nonprofits most commonly ends June 30th, so if they haven’t already begun preparing for year-end, they need to start now. “Not-for-profits should be reconciling all their general ledger accounts and making sure they have a firm grasp on all grant reporting that’s due,” says Tim Fargo, a Partner at Rose Financial Services who serves many non-profit clients. “They also need to engage their audit firms in May to begin preparing for an audit at least 50 days prior to year-end.”
Organizations that have closely monitored their finances throughout the fiscal year will be prepared for a much smoother audit and close. They will likely be better equipped to avoid making errors on their forms 990, which are public documents often scrutinized by donors, grantors, and members as they make resource allocation decisions. Think of it this way—if an organization’s form 990 reflects that it can’t properly manage its own finances, why would anyone want to support it?
Grant reporting is another crucial component tied to closing the fiscal year for nonprofits. Grant-providers rely on these reports to know how their money has been spent, and whether they made the right decision by granting the funds to a particular organization. For a nonprofit, filing thorough and accurate reports could make the difference between a funder opting to give the organization money in the future, and taking their funds elsewhere. Reports for many government grants are usually due by July 31, so closing the books on time is important.
Organizations that receive government grants will need to be prepared during their audits to demonstrate that all costs associated with specific grants have been properly allocated. Preparing for an audit should also include carefully documenting the procedures followed throughout the year. An organization should be able to demonstrate that its transactions followed these routine procedures.
Some not-for-profits neglect to track their restricted funds until year-end, which can lead to difficulty. Restricted funds are donations that have conditions attached—for instance, a donor may give $5,000 to the Boys and Girls Club to be used specifically for a soccer camp. Though such donations can be commingled with an organization’s other funds, the organization must record how the money is spent, and take care to deduct any of the spent restricted funds from the total restricted amount.
Finally, financial stewards of organizations should look at the fiscal year-end as a chance to determine how they can improve and sustain their organization going forward. It’s the time to closely assess actual financial performance versus what was budgeted. Any not-for-profit that has to make audit adjustments during its year-end close should determine how to revise its processes and procedures to avoid the same complications next year. Though it can be a stressful period for some, the year-end close is really an opportunity for closure and financial improvement.