Not-for-Profit Reporting Requirements: 10 Best Practices

Effective financial reporting and annual closing are vital for not-for-profits to ensure accountability, compliance, and financial health. By adopting best practices tailored to their unique needs, NFPs can enhance transparency, strengthen stewardship, and support long-term success. Read on to discover 10 best practices that will keep your not-for-profit in top shape for year-end and beyond.

A comprehensive checklist helps ensure that all financial tasks are completed systematically. This includes reconciling bank accounts, reviewing outstanding invoices, and confirming the accuracy of donor contributions. A standardized approach reduces errors and provides a clear roadmap for the closing process. It should include cleaning up or reserving old and stagnant receivables, reimbursable work in process, and fixed assets no longer in service.

NFPs prepare several key financial statements: the Statement of Financial Position, which provides a snapshot of assets, liabilities, and net assets; the Statement of Activities, which outlines revenue and expenses by program, administrative, and fundraising functions; and the Statement of Cash Flows, which shows the flow of cash through operating, investing, and financing activities. Reviewing these ensures they present an accurate picture of the organization’s financial health.

The Financial Accounting Standards Board is on a seemingly continuous mission to revise, modify, and improve accounting standards. Ensuring finance personnel are appraised of recent changes and their impact helps ensure no surprise changes to previously reported numbers. Year-end is also a good time to touch base with major grantors and review compliance and eligibility, reporting requirements and making sure those involved with grant administration stay knowledgeable and safeguard your organization against noncompliance.

Not-for-profits often receive contributions with restrictions on how or when the funds can be used. It’s crucial to review donor agreements and ensure that restricted funds are properly accounted for and used in accordance with the donor’s wishes. This process also involves reclassifying net assets when restrictions are fulfilled.

Many NFPs are subject to annual audits, either as a requirement from donors or to maintain transparency. Preparing for an audit involves organizing all financial documents and ensuring compliance with accounting standards. Additionally, timely filing of tax forms, such as IRS Form 990 in the U.S., is critical to maintaining tax-exempt status and avoiding penalties.

Effective internal controls safeguard the organization’s assets and ensure the integrity of financial processes. This includes implementing segregation of duties, approval hierarchies, and regular reviews of financial transactions. Documenting these procedures helps prevent fraud and ensures accountability.

Clear communication of financial performance is essential. Regular financial reporting to the board ensures they are informed and able to make strategic decisions. Additionally, sharing financial outcomes with donors and stakeholders demonstrates transparency and accountability, fostering trust and support.

Comparing actual financial results to the budget helps NFPs identify variances and understand their causes. This analysis is crucial for evaluating financial performance and adjusting strategies for future planning, ensuring resources are aligned with organizational goals.

Regularly reviewing policies such as operating reserves and investment strategies ensures they remain relevant and effective. This process also includes updating conflict of interest disclosures to address any changes in leadership or operations, safeguarding the organization’s integrity.

The year-end closing process provides an opportunity to plan for the upcoming fiscal year. This includes developing a new budget, anticipating changes in funding or expenses, and aligning financial plans with the organization’s mission and strategic objectives.

By implementing these best practices, not-for-profits can streamline their financial processes, improve accuracy, and maintain transparency with stakeholders. Strong financial management not only ensures compliance but also builds trust, empowering organizations to focus on their mission and drive greater impact. Contact a trusted advisor today for help with not-for-profit reporting!