10 Best Practices for Setting up an Accounting System for a Charity or Other Nonprofit Organization

There is no single right way or wrong way to set up an accounting system for a nonprofit organization. Every method has its pros and cons. Yet small new nonprofits may find a that simple clear list of best practice recommendations is useful to save time and money and to avoid learning ‘the hard way’. So that’s the purpose of this post, to simply list some the best practices while not delving into discussion or explanations. If you want a discussion of the options or explanation of the recommendations then I am pleased to help with that part of the setup project.

1. Use QuickBooks Online. Charities qualify for a heavily discounted version, Otherwise get it through a Proadvisor accountant at their wholesale price.

2. Offer board members and project managers “report only” live access to specified accounting records. Offer to have customized financial performance reports sent to them on a periodic basis.

3. Use three “Classes” of transactions: Administration, Programs, and Fundraising.

4. Track specific fundraising campaigns and grants as “Projects” if this is required.

5. If any grants or donations have donor restrictions, use “Locations” to separate grant funds “With Donor Restrictions” or
“Without Donor Restrictions. (Yes this is the most non-intuitive suggestion in this blog post but works well for those who use it).

6. Use generic vendor categories when each vendor does not need to be identified by name. For example “gas station” or “restaurant” rather than each business name.

7. If tracking of volunteer hours is desired, allow each volunteer to set themself up as an “employee” with time tracking access.

8. Use the mobile app to scan and store receipts to avoid paper handling and manual data entry.

9. Each person who is calculating and deducting auto mileage should install and use the mobile app for tracking deductible auto mileage.

10. Use the organization’s external accountant, preferably a Proadvisor, as the master administrator until you are certain that the internal executive director or treasurer is comfortable with that role.

There are other considerations not covered in this post including choosing a basis of accounting, setting up effective controls, reporting to outside organizations, integration of banking, bill paying and payroll. These issues also deserve equal attention when appropriate for your organization.