Understand roles and options for your nonprofit's accounting needs
Published: October 2016 | Last reviewed: August 2018
In small nonprofits, bookkeeping and accounting often overlap.
In some cases, financial tasks are handled by the executive director, chief executive, CFO or other leader. Or you might have a part-time or volunteer bookkeeper for daily work and then contract with an accounting service to prepare quarterly or annual reports and tax documents.
There's not necessarily a right or wrong answer to the "bookkeeper or accountant" question. Here's help determining what might work best for your organization.
What's the difference between a bookkeeper and an accountant — and who needs what?
A bookkeeper tends to be responsible for the day-to-day financial life of a nonprofit: recording expenses, tracking flows of income, handling payroll and invoices.
In comparison, an accountant is responsible for interpreting both the day-to-day and overall financial health of an organization. An accountant prepares quarterly and end-of-year financial reports as well as tax documents. An accountant presents to the board and leadership a complete picture of the organization's financial health, performing an internal audit or other quality checks if necessary.
A nonprofit of any size needs someone (or a team of someones) to do the work of both a bookkeeper and accountant.
Can you DIY your books?
If you're considering a do-it-yourself approach to bookkeeping and accounting, ask yourself these questions from U.S. accounting firm Moore Stephens Tiller:
- Do you have someone on staff who has enough accounting experience to master a nonprofit accounting solution?
- What about backup for this individual? Who would step in if there's an emergency?
- Can your computers accommodate cloud-based or desktop accounting software?
- What's the total cost of managing your own books, including hardware, software, staff time, and so on?
- Will you still need to contract with an outside professional for the more complicated financial tasks?
For especially small nonprofits, someone on staff might have relevant skills and experience to handle the finances (even if he or she isn't an accounting professional). However, it might not necessarily be cost-effective for this person to handle bookkeeping or accounting tasks if his or her time would be more effectively spent working directly on services or fundraising.
Also consider your financial controls. Every organization, large or small, must have someone to set up adequate controls to minimize the likelihood of fraud — and a system to adhere to those controls on a daily basis. This includes issues such as who has check-signing authority, who has access to accounts, who approves the payroll, who makes bank deposits, and so on.
Who to hire if you can't
If you're not a strong DIY candidate, it's likely worthwhile to hire or contract bookkeeping or accounting support — or find a trustworthy volunteer with relevant experience.
You might start with your board. Do you have a board member who has accounting qualifications? (If not, consider recruiting one!) Could the board put you in touch with an accounting professional willing to make an in-kind donation of services? Also think about your volunteer base and the applicable skill sets.
If paid bookkeeping or accounting support seems more practical, consider your budget. If funds are limited, you might make do with nonprofit bookkeeping software for day-to-day transactions and reports — either automated or handled in-house — and part-time services from a single Certified Public Accountant or other accounting professional for more advanced tasks, such as preparing financial statements and tax documents. If the budget allows, hiring an outside firm can provide access to a more comprehensive knowledge base.
If your nonprofit has at least a few receivables or more sophisticated bookkeeping needs, it's probably advisable to bring in an accounting professional to at least verify that your reports are correct. Some accounting services also offer preliminary, independent audits. These self-administered audits can be helpful when applying for grants — some of which may require their own audits — to ensure your books are in the best shape possible.
If you're still not sure whether you need the services of a credentialed accountant, you might boil it down to this straightforward advice from Xero, a New Zealand-based financial service company: "Hire an accountant when you have to deal with the government." An accountant's support can be invaluable when it comes to filing taxes, but also in keeping up with changes to tax laws, updating the organization's status with relevant government agencies, and handling personnel and financial records.
This article draws on the expertise of Nishka Smith, a chartered management accountant and founder of the London-based Visual Finance Ltd., which supports charities to strengthen their financial management and planning capabilities.
Bench: What's the difference between bookkeepers and accountants? by Bryce Warnes
The Balance: The difference between bookkeeping and accounting for small business by Rosemary Peavler (2016)
npENGAGE: The nonprofit accounting cheat sheet by Jeff Sobers (2014)
Moore Stevens Tiller: Outsourcing your nonprofit's bookkeeping: Why or why not? (2014)
Blue Avocado: Nonprofit bookkeeping test by Dennis Walsh
Small Charities Coalition: Accounts and finance