Three Tips to Improve Development and Accounting Collaboration

Miscommunication between a nonprofit organization’s development and accounting departments often causes confusion, embarrassment, and may ultimately lead to financial problems. Therefore, nonprofits should take proactive steps to foster collaboration and cooperation between these two critical functions. Here are three tips to facilitate achieving this goal.

1. Get a Handle on the Differences

Accounting and development departments often record their financial information differently, resulting in figures that appear to vary, but are nonetheless both correct. The development department likely uses the cash basis of accounting, while the accounting department records contributions, grants, donations and pledges on the accrual basis, or in accordance with Generally Accepted Accounting Principles (“GAAP”).

For example, if a donor makes a $10,000 payment in April 2015 on a pledge made in December 2014, the development department enters the amount of the payment as a receipt in its donor database in April 2015. However, the accounting department records the payment against the pledge receivable that was recorded as revenue in December 2014, when the pledge was originally made. Receipt of the check doesn’t result in any new revenue in April, since the accounting department recorded the revenue in December. Each department’s figures for April 2015 (as well as December 2014) will be accurate, though they will not agree.

Similar disparities may arise with grants. Development will often record a grant when it receives the cash. If the grant is contingent on a future event, the accounting department will only record the grant as revenue, when the future condition is satisfied according to GAAP.

2. Establish Clear Policies and Procedures

With these two varied methods of recording financial information under one roof, it’s critical that nonprofits reconcile their accounting and development schedules at least once a month. Clear protocols for communicating important activities are also recommended to prevent both departments, and the organization, from experiencing negative consequences.

For instance, if development does not inform accounting about grants on a timely basis, the latter will be unaware of the grants’ financial reporting requirements that could result in forfeited funds due to noncompliance. Furthermore, if the accounting department doesn’t record grants or pledges in the proper period according to GAAP, the organization could face significant issues during its audit, potentially jeopardizing funding.

3. Require Regular Communication Between Department Representatives

The last thing anyone wants or needs is more meetings. However, the stakes are too high for communication between the two departments to be on an informal basis. To start, accounting representatives can use meetings to educate development representatives about the information it needs, when it requires it, and the potential consequences of not receiving that information.

Development staff should provide accounting with sufficient advance notice about prospects, such as pending grant applications and proposed capital campaigns. Development should also present status reports on the various types of contributions — including gifts, grants and pledges. This is especially important for those items received in multiple payments over several years, since accounting may need to discount them for net present value when recording them on the financial statements.

Regular meetings are also an opportunity for the two departments to resolve any issues related to reconciling different sets of financial figures.

A Two-way Street

The activities of the accounting and development departments should be carefully coordinated since they directly affect each other. Taking the actions described above should make it easier for both departments to help their organization fulfill its mission.

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