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Reconciling Your Fundraising and Accounting Systems
Training Program Developed by:
YOUR PART-TIME CONTROLLER, LLCCopyright © 2013 by Your Part-Time Controller, LLC. All rights reserved
Has this ever happened to you: You are making a presentation to your board
and you discover that development and accounting numbers don’t agree???◦ Rather embarrassing at the least and unnerving
to your audience◦ The presentation falls apart as everyone starts
questioning the numbers
Introduction
© 2013 Your Part-Time Controller, LLC Slide 2
What is the problem we are trying to solve? ◦ Fundraising and accounting numbers often disagree
What are the causes? Why does this happen?◦ We will discuss the most common reasons
What are the solutions?◦ Good news: we can solve these issues!
Double data entry into the donor database and the accounting system: ◦ How to eliminate the wasted effort
Should your fundraising/donor database have an integrated accounting software component?◦ Does this solve the problem?
Our agenda for today
© 2013 Your Part-Time Controller, LLC Slide 3
Your board is having their quarterly meeting. ◦ Your development department presents a
financial report showing support of one amount, while;
◦ Your accounting department presents a financial report showing support of a different amount
Who is right? Can they both be right? How is your board supposed to interpret
and understand this conflicting information?
The Problem
© 2013 Your Part-Time Controller, LLC Slide 4
Here is an example of two reports presented by the accounting and development departments:
NOTHING AGREES! ◦ How do you explain this to your board?
The Problem
© 2013 Your Part-Time Controller, LLC Slide 5
Accounting Development
Support:
Individuals $17,000 $19,500
Conditional Corporation
$0 $75,000
Fabulous Foundation $300,000 $100,000
Wonderful Foundation
$0 $50,000
Total $317,000 $254,500
We will break down the most common reasons why fundraising and accounting information may not agree.
The causes
© 2013 Your Part-Time Controller, LLC Slide 6
The concept of “cutoff” is very important when reporting numbers of any type, financial or non-financial
Say a contribution received from an individual arrives by check on the last day of the month.◦ If the check went to accounting, they may record
it on the last day, but development might not receive notification until the next day, so they record it on the first of the next month.
◦ The opposite could also happen if development got the check first
Cause 1: Timing issues
© 2013 Your Part-Time Controller, LLC Slide 7
Assume $17,000 of individual contributions were recorded by development and accounting in the same month
But there was a check for $2,500 that came in to the development dept on the last day. ◦ Development recorded it in their software this
month, accounting did not
Cause 1: Timing issues (continued)
© 2013 Your Part-Time Controller, LLC Slide 8
Accounting Development
Support:
Individuals $17,000 $17,000
Individuals $0 $2,500
Total $17,000 $19,500
The general accounting rule is that a “conditional” contribution may not be recorded until and unless the condition is met. ◦ (There are some exceptions, such as if the
condition is unlikely to come into play.)
Cause 2: Conditional Gifts
© 2013 Your Part-Time Controller, LLC Slide 9
Assume Conditional Corporation contributes $75,000 but adds a condition that the money must be returned if a particular condition is not satisfied.◦ The accounting department cannot record this yet
as revenue. (They record increases to assets and liabilities instead.)
◦ However, development may enter the gift in their fundraising software . The following report may result:
Cause 2: Conditional Gifts (continued)
© 2013 Your Part-Time Controller, LLC Slide 10
Accounting Development
Support:
Corporations $0 $75,000
Accounting rules require all the revenue from a multi-year gift, a foundation grant for example, to be recorded as revenue in year 1 ◦ Provided there are no conditions and the gift
meets several other accounting requirements.
Cause 3: Multi-Year GiftsThe First Year
© 2013 Your Part-Time Controller, LLC Slide 11
Fabulous Foundation grants $300,000 over three years. They send a check for Year 1 of $100,000.◦ Provided the grant meets the accounting rules, it
is recognized in its entirety, as revenue in Year 1. (We will later address the topic of restrictions)
Cause 3: Multi-Year GiftsThe First Year (continued)
© 2013 Your Part-Time Controller, LLC Slide 12
Accounting Development
Support:
Fabulous Foundation
$300,000 $100,000
Wonderful Foundation gave a grant last year for $150,000. They are paying the grant over three years◦ Accounting recognized the revenue last year, so
this year’s grant payment is a reduction of a receivable
◦ Development might show a report listing the $50,000 payment
Cause 4: Multi-Year GiftsSubsequent Years
© 2013 Your Part-Time Controller, LLC Slide 13
Accounting Development
Support:
Wonderful Foundation
$0 $50,000
How should gifts of stock and other nonfinancial assets be recorded?
It commonly happens that development values the gift at one price and accounting uses a different price
Example: Board member A donates 100 shares of ABC Corporation to pay off their outstanding pledge balance of $3,000. ◦ Assume that accounting values the gift net of
commissions at $2,940. Perhaps development credits the donor for the full $3,000. Reports are now off by $60.
Cause 5: Gifts of Stocks and other Nonfinancial Assets
© 2013 Your Part-Time Controller, LLC Slide 14
Differences between classifying gifts for:◦ General operating support vs. programs vs. capital
campaigns Differences caused by reporting on funds that
are:◦ Unrestricted vs. temporarily restricted vs.
permanently restricted Differing treatment of pledge payments Cash vs. accrual presentation differences Communication breakdowns:
◦ Development recorded a pledge but accounting never got a copy of the pledge letter, or vice-versa
Additional Possible Causes of Differences between Development and Accounting
© 2013 Your Part-Time Controller, LLC Slide 15
There could simply be a mistake, or several mistakes, by one department or the other
Plain Old Errors!
© 2013 Your Part-Time Controller, LLC Slide 16
The solutions generally fall into four broad areas:1. Better communication2. Report formats3. Monthly reconciliations4. Document all policies and procedures
The solutions
© 2013 Your Part-Time Controller, LLC Slide 17
Cutoff Development department needs Accounting department needs and
accounting rules Chart-of-accounts Cash versus accrual issues Timing issues
Better Communication
© 2013 Your Part-Time Controller, LLC Slide 18
Reports, if formatted correctly, can show the information both departments want to show, and the information will agree
Example
Report Formats
© 2013 Your Part-Time Controller, LLC Slide 19
Your fundraising and accounting systems MUST be reconciled to each other at least monthly!◦ This should catch errors, timing issues, and all the
other issues already discussed
Monthly Reconciliations
© 2013 Your Part-Time Controller, LLC Slide 20
Document everything!◦ Prepare something that both accounting and
development can use to know how to prevent the problems we have discussed
Documentation
© 2013 Your Part-Time Controller, LLC Slide 21
What is the problem we are trying to solve? What are the causes? Why does this
happen? What are the solutions? Double data entry into the donor database
and the accounting system: Should your fundraising/donor database
have an integrated accounting software component?
Recap: Our agenda for today
© 2013 Your Part-Time Controller, LLC Slide 22
Some organizations enter all contribution information, donor by donor, into their accounting system even after it has already been entered in detail into the fundraising system◦ If you only get a few donations per day, this is not a problem◦ However, if you get dozens, hundreds, or more, this is a
problem SOLUTION: enter the details in the fundraising
software, and summary information only into the accounting system◦ This is similar to how many organizations handle their
payroll if processed by an outside vendor Coordination is required between the departments
Double Data Entry
© 2013 Your Part-Time Controller, LLC Slide 23
A fully integrated software system in theory should solve many of the problems discussed, but in reality it often times does not◦ Coordination between development and
accounting is still necessary PROS and CONS of integration DonorPerfect has a new bridge to
QuickBooks
Integrated or not?
© 2013 Your Part-Time Controller, LLC Slide 24
One of the first slides illustrated “the problem” by showing a hypothetical set of reports produced by the development and accounting departments side-by-side.
With better communications between departments, redesigned report formats, monthly reconciliations, and documentation of polices and procedures, the following report formats might have been produced.
EXAMPLE: One Possible Report Format
© 2013 Your Part-Time Controller, LLC Slide 25
One Possible Report Format Solution
© 2013 Your Part-Time Controller, LLC Slide 26
Accounting
Development
Note
Support: Part 1
Individuals $17,000 $17,000 (A)
Individuals $2,500 $2,500 (B)
Fabulous Foundation $300,000 $300,000 (C)
Total REVENUE $319,500 $319,500 (D)
Pledge and receivable payments:
Part 2
Fabulous Foundation $100,000 $100,000 (E)
Wonderful Foundation $50,000 $50,000 (F)
Total pledge & receivable payments
$150,000 $150,000 (G)
Conditional awards: Part 3
Conditional Corp (cash received)
$75,000 $75,000 (H)
Conditional Corp (no cash yet)
$0 $75,000 (I)
Part 1: ◦ This part of the report shows revenue. The term
“revenue” has a very specific meaning in accounting. Its calculation is governed by GAAP (Generally Accepted Accounting Principles). However, GAAP does not prevent the accountant
from portraying information in helpful ways using different formats, charts, graphs, etc., such that the user of the information can better understand what is happening.
Report Format Notes
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Note A:◦ In our original example, there were no differences
between the development and accounting reports for reporting these individual contributions, so nothing special is needed here.
Note B:◦ The original discrepancy of $2,500 resulted from a
miscommunication between the accounting and development departments. With better communications, both departments were able to record this gift in the same month.
Report Format Notes
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Note C:◦ Two separate and distinct events happened with
Fabulous Foundation. We received an unconditional grant award letter for
$300,000 We received a $100,000 check for year 1
◦ With better communications between departments, both development and accounting can both show the full $300,000 in revenue. Other reports may show some of the grant as
unrestricted and the remaining amount as restricted.◦ In Part 2, both departments can show the $100,000
of cash.
Report Format Notes
© 2013 Your Part-Time Controller, LLC Slide 29
Note D:◦ Now, as a result of better communications and
policies explaining how gifts should be recorded, both departments can produce reports showing the same amounts of revenue.
Report Format Notes
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Part 2:◦ Merely showing revenue, as in Part 1, is usually
NOT sufficient. Other activity is happening which development will want to communicate to management and the board. Examples of other activity include receipt of pledge
payments, receipt of other receivable payments, conditional awards, and more.
Report Format Notes
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Note E:◦ In this section both departments can show the
year 1 payment received from Fabulous Foundation, while the revenue of $300,000 is shown in Part 1.
Note F:◦ Both departments can show the $50,000 pledge
payment from Wonderful Foundation now while the revenue was recorded last year.
Report Format Notes
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Part 3:◦ There are other events which may cause
differences between accounting and development reports. Conditional gifts or grants is one example.
Report Format Notes
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Note H:◦ Assume Conditional Corporation has sent you an award
letter for $75,000 along with a check for $75,000. The award has a condition, however, which will require the funds to be returned if the condition is not met. Both accounting and development may show the receipt of the $75,000, however from an accounting standpoint, no revenue has been earned.
Note I:◦ In this scenario, the conditional award letter was received
without a check. From the accounting standpoint, because of the condition, there is no entry. However, development should enter this into their fundraising software in the appropriate place.
Report Format Notes
© 2013 Your Part-Time Controller, LLC Slide 34
President and Founder of: ◦ Your Part-Time Controller, LLC◦ Offices in Washington, DC; Philadelphia, PA; New
York, NY Email Eric: EricF@yptc.com See Your Part-Time Controller’s website:
www.YPTC.com Read Eric’s blog on nonprofit financial
management best practices: www.EricYPTC.com
Follow Eric on Twitter: @EricYPTC
Eric Fraint’s Contact Information
© 2013 Your Part-Time Controller, LLC Slide 35
Questions?
© 2013 Your Part-Time Controller, LLC Slide 36
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