The Importance Of Proper Fund Accounting For Non Profits

If you're a director of a non-profit organization

, no matter how small, you should be aware of the fact that following the proper fund accounting procedures is extremely important for the success and longevity of your organization. Just because a non-profit doesn't have any shareholders or owners that seek financial gain from its activities, it doesn't mean that accounting takes a back seat in the list of priorities that an organization should have. While you should, of course, devote most of your time and energy to your organization's cause, properly accounting for your received donations and expenditures should also be one of your top priorities.

In the wake of recent controversies surrounding certain charitable organizations, donors are more likely to do some research on a non-profit group before making a donation. This applies especially to large donors, such as corporations who give money to support a certain cause. They don't want to risk their reputation by giving to a dodgy charity and so will want to be sure that the money they give will be well spent. By doing your fund accounting the right way, you will be able to show your current and potential donors exactly where their money is going. You can also demonstrate that donor's wishes and intents are being respected if your organization works on different projects and earmarks funds for specific purposes.

If you've followed the news in the past couple of years, you may have seen some controversies where funds that were donated to some charities were not actually used for their intended purpose, or downright embezzled by employees and board members. Many non profits have had to shut down their operations due to such scandals erupting, even if it only affected one division of a larger organization.

Remember that fund accounting focuses on accountability. Every dollar that is received or spent needs to be properly accounted for, all throughout your organization. Finding donors who are willing to give money to support a cause can be just as difficult as a business that is marketing a new product. Trying to regain the public's trust after poor accounting practices in an organization have been exposed is extremely difficult. A business that has had some bad press can always use various methods to recover from it, such as putting out new products, rebranding, or restructuring its operations. It is best to avoid putting your organization in this position in the first place. Strict adherence to the principles of non-profit accounting can help you do that.

by: Yelena Milne

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