Like a start-up in any industry, many new NPOs do not have the resources needed to hire a dedicated staff member to oversee the organization’s finances. The person responsible for this area typically is an administrative staff member with no background in finance. This can sometimes lead to preventable issues.
When starting a nonprofit organization, there are six key points one must keep in mind when setting up the organization’s finance division:
- Clear division of work: The cashier (one who dispenses funds) and the bookkeeper (one who manages the accounts) must be two separate individuals. Members of the administrative staff may fill both of these roles but it is key that they are two different people.
- Organized billing: Always ensure the final amount on an invoice to clients or a bill you may receive is the actual cost incurred. While this seems basic, errors can easily occur and the extra step to double check the math can save a lot of hassle later on. Billing is different for registered versus unregistered NPOs. For registered organizations, it is key to always receive and issue发票or certified receipts.
- Security is key: Registered organizations should have a stamp for financial documents and a separate stamp for legal documents. Ensure these stamps are kept in separate locations. Always ensure petty cash is deposited to bank accounts in a timely manner. Organizations should require the approval of the organization’s head for withdrawal of cash. Ensure your NPO has a thorough and up-to-date documentation of all financial transactions and statements.
- Stringent approval process: Make sure your organization has checks-and-balances when it comes to financial transactions and the role of each member is clear.
- Tracking in a ledger*: From the birth of the organization, ensure that you have a journal or ledger of every transaction.
- Reporting*: Even if done on a basic level, ensure there are regular financial statements are produced with an analysis of income and expenses. This is important for the executives, key stakeholders, and members of the board to see. Transparency is always key.
*If your organization is unable to hire a professional account for points five and six, it is imperative that the staff members responsible for these tasks are trustworthy and ideally long-term employees. One of the top reasons why organizations run into financial issues is because there are discrepancies in this area.
In addition to these fundamental six points, we recommend organizations look at China Financial Management Manual for Start-up Nonprofit Organizations (《中国初创公益组织财务管理手册》) published by Enyou, a nonprofit accounting firm. This manual explains in detail how to establish the financial management system for a start-up organization.
The success of an organization in many ways can be predicted by looking at the management of its financial department. We believe it is key for every organization regardless of its stage of growth to have a well-run and transparent financial system.
Contributed by Abby Zhang