Guide to Preventing Financial Loss and Fraud in Human Service Organizations
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Waste and fraud can both lead to issues in a human service organization. If your organization is producing a lot of waste now, you can save money, contribute to corporate social responsibility, and demonstrate industry leadership by reducing waste. Along with waste, fraud is another issue that can have a significant cost for a human service organization. Many human service organizations are based on goodwill, charity, and a genuine desire to help others. Unfortunately, these same characteristics can make these organizations more vulnerable to fraud.
Both waste and fraud can result in monetary and reputational losses for any organization, which means organizations of all sizes, types, industries, and locations should implement strategies to prevent fraud and waste.
Loss and Fraud Prevention in Accounting
Fraud prevention and waste reduction start with understanding what the causes are and learning strategies for handling them. When you have a plan in place ahead of time, you can detect fraud or waste early and reduce your losses.
Types of Fraud in Accounting
To learn ways to prevent fraud in accounting, you must first understand the types of fraud and how they occur. The types of fraud in an organization can fall under the corruption, financial statement fraud, or asset misappropriation categories.
- Corruption: This type of fraud occurs when an employee uses an organization’s transaction for their own benefit and violates their duty to the organization, such as through extortion, conflict of interest, or bribery.
- Financial statement: This type of fraud involves intentionally misstating or omitting information in the organization’s financial reports. Examples include inflating assets, hiding liabilities, and creating fictitious revenues. Financial statement fraud is rare but costly.
- Asset misappropriation: This type of fraud occurs when an employee exploits or steals from an organization’s resources, such as by making false claims for expense reimbursement, stealing cash before or after the money was recorded, or taking a non-cash asset from the organization. Asset misappropriation is the most common type of fraud among organizations and the least costly.
Staff shortages and tight budgets can contribute to a lack of prevention and oversight measures. Updating your accounting software is one of the best ways you can decrease your organization’s fraud risk.
Reducing Waste in Business
Though we tend to think of waste in an organization as compost or packaging, there can also be a lot of waste in the accounting department. Fortunately, there are some steps you can take to prevent and reduce waste in accounting.
For example, you can reduce waste in your organization by going paperless. Technology is a more sustainable and affordable alternative to paper. By going paperless, your human service organization can decrease your ongoing printing needs and save money on the space needed for storage.
This guide will help you understand how your old accounting software may be hindering your human service organization and how you can thrive with new accounting software and prevent fraud and waste.
Chapter 1: Problems of Using Old Accounting Software
As your human service organization changes, you can outgrow your accounting system. Since your accounting software is your organization’s financial foundation, this old accounting software can lead to various problems, including susceptibility to hacking attempts, limited usability, and time-consuming workarounds.
What Are the Signs of Old Accounting Software Programs?
Old accounting software can make your human service organization vulnerable and inefficient. Unfortunately, many organizations are unknowingly using outdated accounting software programs, costing them time and money. Signs of old accounting software include:
- Over-using Excel: Using Excel requires a lot of manual labor, and the program is limited in its collaboration capabilities and version control. Manual spreadsheets created with Excel are usually recreated each month rather than produced automatically, so while Excel is an effective spreadsheet program, it isn’t an accounting software. If you rely heavily on Excel because of the lack of features and functions in your accounting software, this may signify that you need to replace your accounting software.
- Lack of scalability: If your accounting software isn’t scalable, it could make financial management overwhelming and challenging. As your organization expands, so should your accounting software. With a new software solution, you can streamline financial consolidations and easily share workflows and data.
- Frequent late reports: If your reporting is frequently late, this could be a sign of a procedure or software issue. Regardless of the reason, late reporting is a sign that change is required. If you are regularly waiting for information, adjusting transactions at the end of the month, and noticing differences in intercompany accounts, it could be time for an upgrade.
- Lack of regular updates: If your accounting software hasn’t been updated in a while, this is a sign your software may be outdated and your vendor has stopped putting resources toward the software. Regular updates are essential for accounting software because they usually include security enhancements. To avoid harmful malware attacks and enjoy improved features and compatibility with other devices, you may want to purchase a new accounting software solution.
- Failing to work on mobile: With the widespread use of smartphones and portable devices, mobile access is essential for your accounting software. If your current software doesn’t work on mobile, it’s outdated. Select a software solution you can use on iOS and Android to allow all your team members to use the tools anytime, anywhere.
- Frequent calculation errors: If you notice frequent errors in tax calculators, foreign currency translation, inventory turnover, or margin percentages, this could be a sign that your software is outdated.
- Using workarounds every day: Accounting processes can become increasingly complex as a business grows. To handle these complexities, your organization has likely developed workarounds. However, if you’ve found that your team uses workarounds daily, this can result in an inefficient process and waste time. The right accounting software can handle your organization’s needs without requiring any workarounds, so if you can’t manage your finances efficiently, you may be using outdated software.
- Lack of connection to the cloud: Today, accounting software should be able to connect to the cloud. With the cloud, your organization gains real-time bookkeeping and accounting access, allowing your team to collaborate remotely.
- Struggling with a complex system: A software that is difficult to use will be challenging for your new employees to learn, and your team won’t want to use it. Do you spend long, tedious hours on calls with support? Is the training process for employees lengthy and challenging? If your software has become increasingly difficult to use, you could have an old accounting system that needs replacement.
- Experiencing cash flow inefficiencies: When you have outdated accounting software, it can lead to inefficiencies in your cash flow and less money to go toward your cause. The right accounting software will make managing and forecasting cash flow easy by providing real-time information via user-friendly dashboards and making each project’s cash flow visible. The proper accounting software makes it easy to obtain the information you need, allowing your organization to avoid cash flow inefficiencies.
- Wasting time with limited automation: With old software, you’ll waste time with mundane, repetitive tasks. Automation of these tasks is crucial for the efficiency of your organization, along with the accuracy of your information. The more manual tasks you perform, the more susceptible your organization is to human error. With the right accounting software, you can put several features on autopilot, such as scheduled reports, recurring invoices, and billing.
- Lack of clear picture of financial position: The proper accounting software should give you a clear picture of your organization’s financial position and demonstrate your financial performance. If your current system fails to do so, it may be time to upgrade.
- Lack of budget for the accounting system: Your organization should have a budget for your accounting software to ensure the system is kept operational, upgraded, and up-to-date. Without this budget, your organization may not be investing in upgrades and training and may have an outdated system as a result.
- Lack of a clear picture of the organization: Your accounting software should give you a clear, comprehensive picture of your human service organization. If your current software fails to do so, it may be time to find a new software solution.
- Failing to integrate with other applications: The accounting software that is right for your human service organization should integrate with your favorite apps. With software that allows integrations, you can take full advantage of the system’s usability.
- Regularly switching between several tools: If you’re frequently switching between tools, this could be a sign that you have old accounting software. Switching between tools can make your organization vulnerable to error and waste time, and it can be difficult to understand your numbers when they’re spread across multiple tools. Instead, the right accounting software will enable you to operate without workflow interruptions and ensure finances are accurate, readily available, and up-to-date.
- Using reports that don’t suit the organization: Your organization will evolve over time, adding new locations, service offerings, products, staff, and management. You may find that your current accounting software is outdated because it no longer reflects your organization’s needs following these changes. For instance, certain reports may become increasingly irrelevant. If you’ve noticed this sign, it may be time to replace your accounting software.
- Wasting time doing manual tasks and using manual spreadsheets: When your organization is wasting time on manual tasks and using manual spreadsheets, this is likely a sign that you have an old software solution.
How to Solve the Problems of Accounting Software
Problems with outdated accounting software can have significant consequences for your organization. Steps to solving accounting software problems include:
- Reconciling accounts: You can lower the odds of inaccuracy by regularly reconciling your accounts with your bank feed.
- Backing up financial records: Storing your financial records in a single place without having a backup to an external hard drive or local computer can put your organization at risk for the loss of important financial statements. If records are accidentally deleted or lost, paperwork is accidentally destroyed, or hardware errors make the recovery of a financial record impossible, those statements could be permanently lost, so it’s essential to have a backup.
- Frequently updating income and costs: When you don’t frequently update your organization’s income and costs, it can be easy for errors to arise and for smaller transactions to get forgotten. To prevent data from going unrecorded, you need to record numbers as soon as possible.
- Staying updated on accounting records: You can avoid some of the problems associated with old software by staying updated on your accounting records. Take a few minutes each day to sort your receipts and invoices to ensure you stay on top of the smallest transactions.
- Separating business and personal expenses: A common accounting problem arises when you mix up your personal expenses and the organization’s expenses. Keeping the organization’s finances separate will make tax season much easier.
- Learning the difference between cash flow and profit: To ensure you can solve problems in your accounting software when they arise, you should understand the difference between cash flow and profit. Cash flow is the amount of money in your bank account every month as money goes in and out of your organization. Profit is revenue minus expenses. For-profit organizations are taxed on their profits and can still make a profit even with cash flow problems. For nonprofits, cash flow problems can mean more money spent needlessly and less money going toward your cause.
- Purchasing a new accounting software: If you’re dealing with issues due to old accounting software, the best way to solve these problems is by buying new software with the functions and features your organization needs.
MIP Fund Accounting® software offers cloud services that solve the problems caused by using old software.
Chapter 2: Benefits of Using New Accounting Software
Your accounting software is one of the most important tools in your organization. Without accurate financial statements and organized finances, you won’t know how your organization is doing.
What Is Accounting Software and Why Use It?
Accounting software is a computer tool accountants and bookkeepers use for reporting and recording an organization’s financial transactions. This software makes calculations easier to perform and analyze. Accounting software can be used to:
- Record transactions.
- Categorize expenses.
- Schedule and pay bills.
- Create purchase orders.
- Create and send invoices.
- Monitor account balances.
- Bill customers for payment.
- Prevent human error and save time.
- Record your organization’s cash flow.
- Create and send past-due notifications.
- Manage vendor and customer contacts.
- Analyze an organization’s sales trends and growth.
- Reduce manual tasks like copying and pasting data.
- Generate reports, such as balance sheets and profit and loss statements.
Your organization can become more efficient when you have new, effective software that reduces manual tasks.
What Are Common Accounting Software Features?
Each program should come with basic accounting software features and benefits. However, some solutions also offer more advanced features for specialized uses.
Basic accounting functions include invoicing, general ledger, account reconciliation, chart of accounts, financial reports, and accounts receivable. Many accounting software solutions also offer the following key features:
- Payroll: Most accounting software options offer payroll services, such as hour and wage calculations, direct deposits, automatic tax payment calculations, 401(k) deductions, and expense reimbursements.
- Time tracker: If you pay your staff by the hour or your employees punch in at their start time, you can keep track of hours and attendance with your accounting software.
- Accounts payable: For any organization, it’s essential to keep track of bills. The accounts payable feature enables you to create purchase orders, schedule automatic payments, and access common tax forms.
- Payment processing: Many accounting software options allow your organization’s clients to pay invoices online, so your staff will dedicate less time to making bank deposits or processing checks. You’ll also enjoy faster processing times and greater security for payments.
- Account reconciliation: For organizations that have multiple bank accounts, account reconciliation is an essential feature of an accounting software solution. You may also want checkbook reconciliation and a general ledger function.
Depending on the needs of your human service organization, you may want some advanced features in your accounting software as well. Advanced features for specialized use include:
- Shipping: If your organization regularly sends goods, you may want accounting software that can handle the shipping process. Features you may want to look for include shipping cost estimation, shipping label printing, shipment tracking, and drop shipments.
- Ease of use after training: After your staff trains on using the accounting software, it should be easy to use. If the software you choose is difficult to use, your team is less likely to adopt it and may resent its implementation.
- Integration with other systems: Another possible advanced feature of your accounting software is the ability to integrate with other systems, such as your POS and CRM. Integration makes it easier to track performance and analyze data.
- Compliance with laws and codes: Staying compliant with laws and codes can be overwhelming for any organization. Fortunately, the right accounting software for your organization can help you maintain compliance by calculating sales tax automatically and preparing tax forms for you.
What Are the Benefits of Accounting Software?
Since accounting software has so many features and functions, it can help your organization run more smoothly. Benefits of using accounting software include:
- Save time: After implementing new accounting software, you will save hours every week that you would’ve otherwise spent on time-consuming manual accounting and bookkeeping tasks. Accounting software can automatically pull the data you need.
- Track costs: For many organizations, a common mistake is failing to accurately track costs, which can lead to a cash flow issue. Fortunately, accounting software offers automated expense tracking so you can automate expense tracking and scan and record receipts.
- Manage inventory: Accounting software that can handle your inventory and stock management can streamline your organization, allowing you to quickly identify what is in stock, what needs to be ordered, and where the purchasing budget is being spent. Inventory management should include tracking and the ability to set inventory levels and specify stock locations.
- Sync financial data: Data can be stored across several different platforms, such as payroll services, credit card accounts, and bank accounts. As a result, it can be a lengthy process to collect the needed data. With accounting software, your organization’s data will be synced via API.
- Eliminate re-keying: Re-keying costs labor and time you could otherwise spend on growing your organization and increases your risk of errors and omissions. When re-keying leads to mistakes, you’ll have to dedicate more time to identifying and fixing the errors. Accounting software eliminates the need to re-key so you can avoid mistakes and loss of time.
- Streamline tax filing: It’s easier to file your taxes when you have accurate, categorized data and standardized financial statements. Certain accounting programs have specific tax reports built-in as well, such as payroll tax and sales tax forms.
- Access data from anywhere: If your accounting software uses the cloud, you can access your information from anywhere as long as you have an internet connection. Then you can accept payments, run reports, and check sales no matter where you are.
- Maintain control of finances: Accounting software will give you more insights into your finances than spreadsheets or pen and paper would. This software can organize and store your data in a single location and give you a full picture of your organization’s financial performance.
- Automate invoices and reminders: To keep your organization afloat and growing, you need to send invoices and reminders on time. The longer it takes for an invoice to go out, the more difficult it may be to collect payments. The right accounting software will allow you to automate invoices and reminders so you don’t have to remember to send each invoice.
- Save money due to less required office space: With accounting software, your organization needs less office space. The software will make the use of physical data unnecessary, so you can save money that you would otherwise spend on rent and storage space.
- Reduce the risk of fraud by tracking cash flow: When you track your cash flow, you can reduce your organization’s risk of fraud. Accounting software automates cash flow tracking to help mitigate your risk.
Chapter 3: How to Transition to a New Software
Once you decide to transition to a new accounting software because your existing system doesn’t meet your needs any longer, you need to know how to choose the right software for your organization and how to implement it into your organization. Since the implementation process can impact your operations, it’s essential to have a plan in place beforehand.
What Is the Best Accounting Software to Use?
Due to financial constraints, nonprofits and human service organizations need to spend money carefully. Accounting software must offer an excellent return on investment to be a worthwhile purchase. For nonprofits, the best options currently available for accounting software include QuickBooks, Blackbaud Financial Edge, and MIP Fund Accounting®.
QuickBooks is the most affordable option and meets most of a small organization’s needs. However, there are many disadvantages to using QuickBooks that make it a poor choice for nonprofit organizations. QuickBooks is not purpose-built, does not offer grant management or donation tracking options, and is not a great long-term accounting option, as it is not a scalable or comprehensive solution. Ultimately, QuickBooks is not ideal for nonprofit use and was made with for-profit businesses in mind.
Blackbaud Financial Edge
Blackbaud Financial Edge is a cloud-based software frequently recommended to larger nonprofits. Though Blackbaud’s integration with Raiser’s Edge – a funding and donation management platform – made this a popular option among these nonprofits, Blackbaud will no longer be supporting Raiser’s Edge. As such, nonprofits will be left without an essential feature if they choose this software.
MIP Fund Accounting®
For nonprofits, MIP® is the solution for true fund accounting software. When you choose MIP Fund Accounting®, your new accounting software will allow your human service organization to:
- Secure funding.
- Maintain funding.
- Increase efficiency.
- Increase productivity.
- Produce reports easily.
- Integrate budget tools.
- Gain timely access to budget data.
- Create unlimited budget scenarios.
MIP® software is made specifically for nonprofits and is easy to learn, flexible, and scalable. MIP Funding Accounting® offers comprehensive audit trails and excellent customer support. Our software is compliant with the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB) and offers nonprofit organizations audit and fraud protection. Since our program is cloud-based, you can easily track payroll, grants, and donations from anywhere you have an internet connection.
Steps to Transition to New Accounting Software
For many organizations, the ideal time to transition to new accounting software is at the end of your fiscal year. Planning for the transition ahead of time is essential to ensure the process goes smoothly, and you may want to start planning months before your migration date. Once you have decided to make an accounting software transition, follow these steps:
- Do your research: Before you begin looking for accounting software, determine what your requirements are. Try demos and use free trials to see how easy different products are to use and to determine which additional features are most useful, such as cloud computing.
- Let your accountant know: Once you decide to transition to new accounting software, let your accountant know, as you may need them to export information and be comfortable using the software. Your accountant may even be able to offer advice and guidance on selecting the right software for your organization.
- Select a date: Choose a date that you will officially stop using your existing accounting system and transition completely to using your new software. Though you can select any date, for many organizations, the ideal time to transition to new accounting software is on the first day of a new month.
- Audit your organization’s infrastructure: You need to determine whether your new accounting software is compatible with the organization’s existing hardware. If your existing IT infrastructure and the accounting software are not compatible, you may have to select another option or upgrade your existing hardware.
- Do a data backup: Back up your organization’s data before you transition to new accounting software. This data backup ensures you don’t lose critical information if something goes wrong during the transition.
- Buy accounting software: Next, purchase the accounting software that’s right for your human service organization. With MIP®, you’ll get a comprehensive, scalable system that can handle your organization’s needs.
- Perform a trial run: Before moving all of your organization’s data to your new accounting system, perform a trial run. By doing so, you can ensure that your new software will correctly compute the information.
- Format your data: When recording information, different data formats are supported by different accounting systems. Before you transition to a new system, save your data in the recommended format and confirm it is error-free. Create a data map to ensure the transfer is free of hassles, as a data map will let you know how the information will be displayed in the new format.
- Run a test on your imported data: After you import the data, run a test to determine whether the accounting software is working optimally with few errors. Compare the reports you have from your old software with your new reports to see if there are any discrepancies.
- Set goals: Set quantifiable goals for your software implementation to track your organization’s performance. With these goals in mind, you can determine the best data format for your future plans and objectives.
- Train users: Allow enough time to train your team and test them on using your new accounting system before the final cutoff date. Establish standard system procedures for your team while learning the new software and ensure that every user complies to avoid major issues caused by minor errors like inaccurate data entry.
Time, trials, and training are the most crucial factors in a successful software transition. To ensure your changeover is successful, spend enough time planning and developing your priorities associated with the new accounting software, taking advantage of free trials for different systems, and training each user on how to use the system properly.
Chapter 4: Best Practices to Keep Your Organization Financially Sound
Though a new accounting software can help your organization with financial management, you should also follow some best practices to keep your human service organization financially sound. You can also start using these best practices before implementing your accounting software to get your finances under control quickly.
Best Practices in Finance and Accounting
Here are some of the best practices for finance departments generally and nonprofits specifically.
Finance Department Best Practices
Ensure your human service organization operates as successfully as possible by utilizing best practices in finance. Finance organization best practices include:
- Go paperless: Share or store your documents in a digital format. Physical documents are at a greater risk of damage or loss, while digital documents are easily retrievable and can free up your office space. Additionally, going paperless will make your organization more eco-friendly.
- Utilize the internet: Today, it’s crucial to have online access to your organization’s database. When your accounting software offers cloud services, you’ll have access to your data no matter where you are. You can also give your team custom access to the database by creating different user roles, and you can input transactions in real-time to ensure no transactions go unrecorded.
- Avoid paying in cash: Aside from small, petty cash expenses, avoid paying in cash when possible. Small costs are difficult to monitor, and paying in cash means you need to issue receipts, which can be tiresome. You can reimburse a cash payer using an expenditure tool, allowing you to ensure that each cash payment is recorded correctly. You may also want to choose to buy in bulk to reduce the need to record cash payment transactions.
- Harness intelligent accounting solutions: Intelligent accounting solutions can analyze your transactions and develop important reports, such as cash flow statements, balance sheets, and income statements. These intelligent solutions can help you make informed decisions regarding your organization’s finances.
- Separate accounts receivable and accounts payable: Keeping your accounts payable and accounts receivable separate can help your organization understand whether customers paid or how much remains unpaid.
- Maintain different accounts for business and personal finances: As with separate accounts receivable and accounts payable, keeping separate bank accounts has several benefits. With a separate business account, you can quickly get a snapshot of your organization’s financial wellbeing. If you don’t separate your business and personal accounts, you could find yourself regularly engaging in the time-consuming act of searching your personal account for business transactions. By maintaining separate accounts, you will simplify your accounting processes.
Best Accounting Practices for Nonprofits
Similarly, utilizing best practices in accounting can ensure you understand the big picture of your organization. Accounting best practices include:
- Choosing the right fund accounting solution: Find an accounting software that was designed for nonprofit use. Human service organizations have unique accounting needs and challenges, and the best way to meet these needs is by using nonprofit accounting software. This software can simplify, strengthen, and streamline forecasting, budgeting, fundraising, grant management, and HR management. The right accounting software can also provide internal controls over financial data and help you protect and secure your information.
- Staying organized: For nonprofits, organization is critical for effective bookkeeping. With a complete, accurate general ledger, you can easily pull reports and data whenever you need them.
- Tracking every expense: When an organization is new, you may be able to track all expenses and keep a simple spreadsheet. However, as your organization grows, you’ll likely require a more accurate, complex accounting method, such as an accounting software solution. Your accounting method should include the biller’s name, the expense type, the account number, the amount owed, and the date the invoice was received. Additionally, keep every receipt, incoming bill, and credit card statement in the accounting software to ensure you are managing your cash flow properly.
- Creating a yearly budget: Every organization needs an annual budget. Keep your budget realistic so you can stick to it as closely as possible. Of course, be sure to evaluate each month and allow your budget to evolve throughout the year. You may also want to get your budget approved by your board of directors so they will understand your organization’s upcoming initiatives.
- Backing up financial records: No matter where you store your organization’s records, you should have a backup of all your information to protect it against physical threats like theft and cyberattacks like ransomware.
- Limiting accounts receivable: You can limit issues your organization may face with accounts receivable, such as setting clear credit policies, making sure billing is accurate, and requiring that part of a payment be paid upfront.
- Performing monthly reviews: Your organization should be reviewing your accounts payable and accounts receivable each month. Check invoices to determine what needs to be sent and what has already been sent. Every organization should balance the books at least once per month. Keep in mind that the more frequently your accounting tasks are handled, the less arduous the tasks will be.
- Maintaining accurate records: To be successful, an organization needs accounting records that are accurate and up-to-date. These records will help guide your decisions and tax filings and will be a primary factor in whether a lender decides to loan money to an organization. Be sure to record each transaction that also calculates the totals across different accounts.
- Automating whenever possible: Though you should stay on top of your organization’s numbers, you don’t need to spend your valuable time on mundane bookkeeping tasks like invoice processing and payroll. Accounting software programs can save your organization time by automating many of these processes.
- Meeting frequently with key staff: To determine whether expenses should or can be adjusted, meet with your key staff frequently.
- Developing a multi-year financial plan: Planning your finances for the year is just the beginning. A multi-year budget can support the growth of your organization. If you want to reach a certain amount of money raised in three years, you may need to create marketing campaigns, hire employees and upgrade your accounting software. By planning for this growth, you can better support it and ensure you reach your goals.
- Establishing internal controls and policies: Establish internal controls and policies to improve your organization’s fraud protection. By implementing these internal policies, you can show your employees, donors, and board of directors the ethics and values your human service organization upholds. Additionally, these policies remind your employees about the standards to follow while they work.
- Assigning duties to different staff members: Another best practice for accounting is assigning various financial tasks to different staff members. This can help protect your accounting data’s integrity and keep your employees honest. Since fraud is a major concern for nonprofits, this best practice can help you prevent it.
- Understanding accounting and tax regulations: Accounting is different for nonprofits than for-profit companies. Nonprofit organizations need to use generally accepted accounting principles (GAAP) and meet different requirements from the Internal Revenue Service (IRS).
- Establishing relationships between departments: Develop strong communication between departments via regular meetings and training and reconcile difficult records.
- Evaluating the current system each year: To ensure your system will grow with your organization, evaluate the system and your accounting needs each year. Use this time to determine whether your organization should use an on-premises software system or a cloud-based system.
Similarly, nonprofits can benefit by following best practices for reducing fraudulent activity. Many organizations lose a portion of their yearly revenue to fraud, which can be a significant loss for any charitable organization. Decrease your organization’s fraud risk with these best practices:
- Update your accounting software.
- Mandate dual signatures.
- Avoid pre-signing checks.
- Implement quarterly audits.
- Observe and listen to employees.
- Reconcile bank statements monthly.
- Keep cash and blank checks in a locked cabinet.
- Develop a fraud policy for your organization and staff.
- Hold bi-annual refreshers on your organization’s fraud policy.
- Invest in software that can flag any unusual variances in your budgets.
- Make your fraud policy a part of your onboarding process for new staff members.
- Set up a reporting system that encourages staff to submit tips or concerns of fraud via phone, email, or anonymous tip box.
Improve Efficiency of Back-Office Operations
Using limited resources efficiently is essential for a human service organization. Back-office operations are the processes and tasks performed without public attention that impact the entire organization, including accounting, human resources, compliance, and IT support. Back-office operations allow your organization to accept volunteers, hire new members, ensure compliance, keep finances in order, and rely on technology. You can increase the efficiency of your back-office operations by automating, communicating the organization’s efforts, and providing training.
Improve your organization’s efficiency with our software solution from MIP®.
Chapter 5: Make Sure You Are Audit Ready
For nonprofits, audits involve examining your financial records to ensure you are complying with the requirements for tax-exempt entities. When you’re facing an audit, you want to ensure your organization is ready.
What Does a Nonprofit Audit Do?
Some audits are mandated, but your human service organization may want to conduct an audit regardless of requirements. A nonprofit audit can ensure:
- Your organization complies with generally accepted accounting principles (GAAP).
- Your supporters are reassured that you are successfully managing your operations.
- Your executives and board members are receiving accurate financial information.
- You know you are exercising good stewardship over your funds and doing right by your grant-awarding organizations and donors.
A nonprofit can face an independent or single audit, so understanding the difference between the two is key.
- Independent audit: An independent certified public accountant (CPA) not affiliated with the organization conducts the audit and provides an unbiased opinion.
- Single audit: This type of audit is required for nonprofits that expend at least $750,000 in federal or state funds in a single fiscal year. Generally, a single audit includes both a compliance-based audit and an independent financial audit.
What Is Audit Readiness?
The term “audit” is intimidating for organizations and individuals alike. An audit is essentially a review of an organization’s financial statements. Audits are common and not a cause for fear, and proper preparation can ensure a successful audit. You will find what supporting documentation and schedules you need in your auditor engagement letter. Finance staff should gather all financial and procedure documentation, along with statements and supporting schedules for financials. Audits serve the following functions:
- Protecting the organization’s assets and funds.
- Safeguarding the organization’s services and programs.
- Reassuring funders, donors, grantors, and supporters of the proper program and fund management.
Audits tend to point out the issues, inefficiencies, and weaknesses present in an organization and make recommendations for improvement. Part of being audit-ready is addressing issues when you identify them and before the audit takes place.
What Steps Are Involved in an Audit of Nonprofit Companies?
Though the specifics of an audit vary depending on the organization, there are some general steps involved in the audit process for nonprofits. Here are the steps of a nonprofit audit:
- Auditor selection: Define what characteristics you’re looking for in your auditor. Choose an auditor with relevant experience, such as someone with experience in tax-exempt charitable organizations and nonprofit accounting.
- Preparation: Prepare and plan ahead of time as much as you can. Collect figures and relevant documents year-round, establish milestones and a timeline with the auditor, hold a meeting with the finance and audit teams so everyone is on the same page, prepare copies of the audit binder, and designate a point of contact.
- Fieldwork: An auditor will work on-site to review necessary information on your finances, which may include conversations with staff members. An auditor will determine how much money comes in and out of your organization and whether it’s handled correctly.
- Post-work: After the auditor completes their analysis, they will submit a final report to your organization’s audit committee or board of directors. Address any concerns raised in the final report. Prepare for the next audit by maintaining a file for restricted donations and a file for documents usually examined in an audit, separating cash and non-cash donations throughout the year, and continually evaluating your recordkeeping.
Purchase the right technology for nonprofit audit help to ensure your next audit goes more smoothly.
MIP Fund Accounting® Can Help You Prevent Waste and Fraud
Many nonprofit organizations lose about 5% of their annual revenue to fraud. For human service organizations, any loss of funds is significant, yet nonprofits report a median loss of $100,000. Fraud can also affect your organization’s services, mission, and donor confidence.
At MIP Fund Accounting®, our accounting software can help your organization prevent waste and fraud by streamlining processes and implementing ongoing training. Our fund management solution can offer your human service organization fraud protection that includes the ability to set a user’s rights, mask sensitive account information, and enable alerts. Our configurable, comprehensive system is intended for informed decision-making and financial management within nonprofit organizations.
Our platform was designed specifically for nonprofits, so you’ll find it secure, flexible, and equipped with everything you need to manage your finances and generate reports. We ensure our technology is easy to use and the processes are simple, so anyone in your organization can successfully use our software. MIP® accounting software can provide your organization with the following:
- Fixed assets
- General ledgers
- Integrated payroll
- Advanced security
- Bank reconciliation
- Benefits enrollment
- Electronic requisitions
- Accounts receivable and payable
- Built-in GASB and FASB compliance
- Human resource management services
Our accounting software can scale with your organization’s needs, streamline human resource management, adapt to change, and help you forecast budgets. Learn more about how our services at MIP Fund Accounting® can help you or request a demo today to see what we can do for your organization’s goals.