As non-profits in BC approach their fiscal year-ends, certain financial tasks can slip through the cracks. Leaving these tasks unaddressed can result in compliance issues, inaccurate financial reporting, and potentially strained relationships with partners, team members, and other collaborators.
We partnered with Enkel, who has helped hundreds of Canadian non-profits, to create a guide to help you deal with the most overlooked or mishandled year-end financial tasks, so you can avoid financial errors, maintain transparency, and position your non-profit for future success.
1. Reconcile Restricted and Unrestricted Funds
Non-profits often receive restricted funds—donations or grants earmarked for specific purposes. These need to be tracked and reconciled separately from unrestricted funds to avoid compliance issues and ensure transparency with funders.
Why reconciling restricted and unrestricted funds matters
Proper reconciliation ensures compliance with grant terms, maintains transparency, and builds donor trust. Financial clarity can help ensure strong relationships and secure future funding with trusted partners.
What happens if you don't do this task?
Mismanaging restricted funds can lead to spending errors, audit issues, and even legal penalties.
How to handle it:
- Set up separate accounts or classifications for restricted and unrestricted funds using accounting software.
- Perform quarterly reviews to ensure all funds are being used as intended.
- Have your books reviewed by a senior finance professional on a monthly or quarterly basis once your bookkeeper has wrapped up the books.
2. Review Deferred Revenue
Deferred revenue refers to money received but not yet earned, such as grants or multi-year donations. It’s easy to overlook, but misreporting deferred revenue can result in overstating your income.
Why reviewing deferred revenue matters
Accurate deferred revenue reporting helps with cash flow management and keeps your financials in order. Accurate deferred revenue tracking by funders helps organizations budget more effectively by recognizing when certain revenues will be available and when they will need to deliver on programmatic commitments to “earn” that revenue. Nnon-profits often receive grants or large donations tied to specific programs, events, or timelines. Deferred revenue helps track these commitments and ensures that the organization meets its obligations.
What happens if you don't do this task?
Overstating revenue could lead to financial mismanagement, causing strain on future periods when these funds have already been spent. It can also lead to audit issues and a loss of credibility with funders or other key partners.
How to handle it
- Use a separate deferred revenue account in your accounting software to track each stream of unearned funds.
- Ensure that the account is reviewed regularly with revenue recognized in accordance with your accounting policies.
- Given that revenue recognition often follows expenditures, it’s also important to track expenses by funding source.
3. Year-End Adjusting Journal Entries
Year-end adjusting journal entries (AJE) are entries made in the accounting records at the end of an accounting period to adjust the accounts to reflect accurate financial conditions.
Year-end adjusting journal entries are important to get your bookkeeping records to a point where they are compliant with the accounting standards under which your financial statements will be audited or reviewed.
Many of these entries are not necessarily important on a day-to-day basis, so they often get ignored throughout the year.
Why posting year-end adjustments matters
- Accurate financial reporting: These entries provide a clear, accurate snapshot of a business’s financial position at the end of the year.
- Tax preparation: AJEs ensure all income and expenses are recorded in the right period is critical for preparing accurate tax returns.
What happens if you don’t do this task?
You run the risk of your accountant doing the work, which may increase the cost of your year-end audit. It can also paint a picture that your books require a lot of clean-up at year end.
How to handle it
- Have your financial team review your adjusting journal entries from your accountants from last year to identify what you proactively address to avoid adjusting journal entries this year.
- Common places to look include:
- Prepaid expenses
- Fixed assets
- Vacation balance accruals.
- Make sure to maintain documentation for the adjustments that you can share with your auditor to support the opening balances, closing balances, and adjusting entries you have made.
4. Perform a Fundraising Efficiency Review
Non-profits often focus on how much they raise without evaluating the true cost of their fundraising efforts. A fundraising efficiency review helps you understand the actual return on investment for your campaigns.
Why performing a fundraising efficiency review matters
This review ensures you maximize the effectiveness of your fundraising activities. Knowing your cost per dollar raised helps you decide whether to continue or discontinue certain campaigns based on their performance.
What happens if you don't do this task
If you’re spending more to raise funds than you’re bringing in, your resources will be drained, which could negatively affect program delivery.
How to handle it
Gather data on staff time, marketing costs, and event expenses. Calculate your cost per dollar raised for each campaign to determine which are worth continuing.
5. Internal Control Review and Updates
Internal controls are essential for safeguarding your non-profit’s financial resources. However, these controls are often not reviewed regularly, which increases the risk of fraud or mismanagement.
Examples of internal financial controls include:
- Segregation of Duties: Ensuring that no single person is responsible for handling all aspects of a financial transaction. For example, the person authorizing a payment should be different from the one processing it or reconciling the bank accounts.
- Authorization and Approval Processes: Requiring approvals for certain financial transactions, such as large payments or expenses. For instance, expenses over a set limit may need board approval or executive director sign-off.
- Physical and Digital Access Controls: Limiting access to financial records, accounting systems, and sensitive data. Only authorized personnel should have access to cash, checks, or financial software.
- Regular Reconciliations: Performing frequent reconciliations of accounts, such as bank accounts or credit card statements, to detect and correct any discrepancies.
- Budget Monitoring and Reporting: Establishing a process for regularly reviewing actual spending versus budgeted amounts. This ensures that financial resources are used effectively and within approved limits.
Why reviewing internal controls matters
Strong internal controls ensure that your non-profit’s financial processes are protected from fraud, mismanagement, or errors. They also help ensure compliance with funders and auditors.
What happens if you don't do this task
Weak internal controls can lead to financial mismanagement or even fraud. Without regular reviews, mistakes or inappropriate transactions can go unnoticed, causing long-term harm.
How to handle it
- Conduct an internal audit to assess the effectiveness of your current internal controls.
- Ensure segregation of duties and approvals for all major financial transactions.
Ready to Strengthen Your Non-profit’s Financial Health This Year?
Year-end financial tasks are critical for ensuring transparency, compliance, and the long-term sustainability of your non-profit. If you’re feeling overwhelmed or unsure about tackling any of these tasks, start by reaching out to your internal team.
Your Finance Manager, Bookkeeper, or Accountant should be able to guide you through essential processes like reconciling funds, reviewing deferred revenue, and ensuring strong internal controls.
If your team doesn’t have the capacity or expertise to manage these mission-critical tasks, working with external financial support can make all the difference!
We wish you success as you work towards building more sustainable organizations and develop your capacity for financial management!
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ABOUT THE AUTHOR
Omar Visram is the Co-Founder and Head of Growth at Enkel, a financial services firm specializing in supporting Canadian non-profits and small to medium-sized businesses with their financial operations. Enkel gives Canadian non-profits the financial operations support they need to stay compliant and thrive. Book a free consultation to learn how our bookkeeping, payroll, and fractional controllership services can help your non-profit in the year ahead.
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Ensure your organization is overseeing its finances effectively with our Board Fundamentals: Financial Governance workshop. Find out more about the course and when it's next offered here.
Personal reflections from Zahra Esmail