Author Archives: Tamara Dypsky

Reconciliations (avoiding management letter comments, part 7)

One part of a good system of internal controls is performing reconciliations between general ledger accounts and supporting documentation or subsidiary ledgers.  The timing of the reconciliations depends on the account.  Completing reconciliations in a timely manner helps to find differences and errors and allows the organization time to look into any problems prior to completing year-end financial statements.

Some of the accounts that should be reconciled monthly are cash, investments, account receivables, and account payables.  Salary expense should be reconciled on a quarterly basis to the Form 941s that are filed.  A reconciliation between the contributions per the general ledger and the contribution database can be performed on a monthly, quarterly or yearly basis.

One way to stay on top of reconciliations is to create a checklist of reconciliations to be performed on a monthly, quarterly, and yearly basis.  This checklist would serve as a reminder of what reconciliations to complete when and could also provide a sense of accomplishment when the reconciliations are checked off each time they are completed.

This is part 7 of a continuing series on common management letter comments and how to avoid them.  Click to read part 1, part 2, part 3, part 4, part 5, and part 6.

Approval of Journal Entries (avoiding management letter comments, part 6)

One part of a good system of internal controls is having all general journal entries reviewed.  This is also a key part of the segregation of duties in that someone other than the person making the journal entry reviews it.  This review is done to help prevent errors such as adjusting the wrong accounts and transposing numbers.  It also helps protect against fraud by making sure there is a valid reason for the journal entry and someone is not just increasing revenue to make the organization appear better.

Depending on the size of the organization, it can be difficult to determine who should be reviewing the journal entries.  If there are two or more people in the accounting department, one person can be the reviewer while the other person makes the entries.  If there is only one person in the accounting department, then it is necessary to go outside the department to get the journal entries reviewed.  This can be done by have the president or executive director be involved.  A Board member is also a good person to have review the journal entries.

There are also different ways to review the journal entries.  At some organizations each journal entry is reviewed prior to posting.  Other organizations review the entries on a weekly or monthly basis after they are posted.  One of the important things to remember is to document the review and approval.  The simplest way to do this is to print out the journal entries and have the reviewer initial them.  This should then be saved as support.

This is part 6 of a continuing series on common management letter comments.  Click here to read part 1, part 2, part 3, part 4, and part 5.

#nonprofit #nonprofitaccounting #fraud #internalcontrols

Exchange Transaction or Contribution (avoiding management letter comments, part 5)

Organizations receive many different types of revenue including contributions, grants, contracts, and dues.  Some of these revenue types are recorded in a similar manner while others are very different.  It can also be hard to tell the difference between of the types.  For example, grants and contracts usually have a written agreement, but they are recorded differently.

One of the most important questions to consider is who is receiving the benefit.  If the benefit is going to be received by the public or a group not related to the donor, then money is probably a contribution.  If there is some product or service that is going back to the organization that is providing the money, then it is probably an exchange transaction.

The first step is to determine if the revenue is an exchange transaction or a contribution.  Exchange transactions are recorded based on when the revenue is earned and affect revenue, receivables, and deferred revenue.  Contributions are recorded when received or pledged and affect revenue, receivables, and temporarily restricted net assets.

Below are some things to consider when deciding if there is an exchange transaction or a contribution:

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Review of Website Capitalization Rules

Accounting for website development costs depends on the stage in which they are incurred.  There are 4 stages:

1)    Planning the website

2)    Developing the applications and infrastructure

3)    Developing graphics and content

4)    Operating the site

 

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