Nonprofits: Strategies for a Quicker, More Accurate Month End Close

Waiting on financial reports can be frustrating. It's even more frustrating when reports are issued late and they are hard to understand.

To make informed financial decisions and react quickly to changing economic and other conditions, its critical nonprofits master closing the books on a timely basis while also providing understandable and accurate reporting of financial information.

At CLA, we prepare monthly financial reporting packages for thousands of nonprofits each month and are familiar with the challenges and frustrations of financial reporting. Here are several common issues we encounter and suggestions to help you improve:

No time for analysis

Typically, the closing process has bottlenecks and delays, leaving too little time for evaluation. Controllers and CFOs are strapped to get the financials out the door and don't spend enough time looking at the big picture. This may be especially true for performing arts or other cultural organizations with programs or season performances that don't align nicely with the monthly calendar. Improving the close provides time for valuable analysis and clear communication to stakeholders.

Suggestions

• Review your closing checklist process and identify the root causes of your delays.
• Identify what analysis can be done before the end of the month and during the first week of the subsequent month when time constraints are usually lighter. Adjust for performances, exhibitions, or other major revenue-generating events that don’t have a regular monthly cadence. For example, reviewing the income statement by program or department can help spot potential problem areas earlier in the close process.
• Develop a list of saved reports you use regularly for analysis and review.
• Solicit department managers’ feedback earlier. Send out a general ledger detail of their activity before month end or post it to their dashboard and request feedback by the fifth of the month.

Overly dependent on Excel

If you build financial statements in Excel, you may spend a lot of time formatting numbers and verifying (and re-verifying) to check for errors. While Excel-based financials may be unavoidable for some, eliminating it should be one of your top goals.

Suggestions

• Explore the reporting capabilities of your general ledger (GL) software — can core reports be generated directly from the program?
• Consider a chart of accounts overhaul so summary and detail reporting can be generated out of your GL software.
• Consider a software upgrade. Modern accounting software like Sage Intacct can cut monthly and audit close times, unify data, and improve security. Sage offers industry-specific modules for things like nonprofit fixed assets and grant tracking.

Too much detail

Some nonprofits have financial statements 25 to 50 pages long, making reviews challenging for board members and other stakeholders.

Suggestions

• Include a summary version of the statement of activities. This rolled-up version should condense the statement of activities to a single page. In some cases, a summary statement of financial position can be useful.
• Include a cover letter with the financial statements containing a bullet point summary of material changes in cash, other assets, liabilities, revenue, and expense. 
• Include a simple dashboard graphing cash balances over time, year-to-date revenue, and expense compared to budget and prior year. This can be as simple as three graphs on a page, which provides a clear picture of how financial activity is trending.

Perfectionism 

Some controllers and CFOs hold the books open too long to make sure their numbers are perfect. By the time the financials are released, the data can be stale and it may be too late to course-correct with better financial decisions.

Suggestions

• Be willing to accrue estimates, if necessary.
• Aim to get the financials out by the 15th, regardless.
• Use a reasonable estimate of materiality when considering whether to hold the books open. For example, a nonprofit with a budget of $1 million in revenue could choose a materiality threshold of $10,000 (1%).

Double entry in accounting system and CRM

Double entry to the accounting system and the CRM is both common and inefficient. Sometimes changes to the CRM (ticket refunds, for example, or donations collected at an event) after month-end don’t get properly reported to the finance department.

Suggestions

• Review how your CRM and general ledger are mapped (whether integrated or not). Many CRMs still aren’t integrated, and it may have been a while since you reviewed how these two systems align. 
• Start by laying out all the CRM codes and corresponding GL codes to spot inconsistencies. 
  
  

Poor collaboration with development employees

If development and finance are not in sync, which records are the correct ones?

Suggestions

• Meet with the development team to share your vision for improved collaboration and streamlining. 
• Develop plans to coordinate the closing process, including a closing calendar both departments can agree on. 
• Ideally, CRM should close the first or second business day after month end. 
• Helping development improve their processes supports a quicker month end, expedited delivery of financial information, and a single version of the truth.

Inconsistent posting methods

Determine the preferred posting cycle for your organization — is it daily, weekly, or monthly? Many nonprofits have either a weekly or monthly posting process.

Suggestions

• It’s recommended to use two clearing accounts — one for cash and check and the other for credit card/ACH donations.
• When importing from the CRM, the offset to your credits to revenue will debit one of these two clearing accounts. This method facilitates easier bank reconciliation because the accounting team can immediately make debits to cash and credits to clearing (either through CSV import or your accounting software’s bank feed).
• This also facilitates month-end reconciliation by isolating the different types of transactions. At the end of the month, the balance in your clearing accounts is your in-transit deposits.

Challenges reconciling credit card transactions

Reconciling electronic contributions to the donor system and the general ledger is a cumbersome process.

Suggestions

• Look for a unique identifier between the merchant processing system and the CRM and build output files that can be quickly sorted and grouped by deposit using a lookup formula in Microsoft Excel.
• Limit the number of card-processing vendors your nonprofit uses.
• As more CRMs continue to integrate card processing, this reconciling process should become easier over time.

How CLA can help nonprofits improve month-end close

Making an upfront investment of time to improve your financial reporting process can help save you hours each month on the back end. Those who review your financial information will likely appreciate changes to provide summary financials, a concise written summary, and a simple graphical dashboard.

Modern accounting software — like Sage Intacct — can make month-end close far easier and more accurate for nonprofits. Contact CLA’s Sage Intacct team to learn more. 

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