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How to Build a Stronger Not-For-Profit Development and Accounting Team

Boston Business Journal
June 12, 2018
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As seen in the Boston Business Journal

“I can do things you cannot, you can do things I cannot; together we can do great things.” – Mother Teresa

Mission is at the heart of every not-for-profit organization, and is a driving force and motivator for all those involved. Working towards achieving the mission is a goal shared by all of the departments within the organization, but how each functions and contributes to the overall goal, throughout the year, may be very different.

Two of the most important departments within an organization are development and accounting. Together, they are responsible for raising and managing funds to help the organization work towards their mission goals.

Development is tasked with raising money to fund philanthropic efforts. This involves building relationships with donors and exploring new fundraising opportunities from various sources. Amongst other duties, accounting is responsible for proper recognition and reporting of the funds raised by development, whether they be grants, contributions, or other forms of planned giving within the financial statements.

Accounting is also responsible for monitoring the fulfillment of the organization’s fiduciary responsibility to the donors by tracking the satisfaction of donor-imposed stipulations on the funds, if applicable.

Collaboration between these departments is essential. The actions of one department directly impact the other. Lack of communication between the two can have a negative impact on the organization; it is important for these departments to collaborate throughout the year.

When development and accounting departments are mutually exclusive, a breakdown in communication can occur, leading to dire consequences. By way of illustration, most grants come with reporting requirements, purpose restrictions, and sometimes, special audit requirements.

If the specific terms of the grant agreement are not identified and communicated in a timely manner between departments, deadlines could be missed and restrictions not met, putting the funding in jeopardy.

Creating collaboration

It is important to note that development employees are not accountants, nor are they fluent in Generally Accepted Accounting Principles (GAAP), or its application. Likewise, with the advancement of technology, there are creative and innovative fundraising methods surfacing that accounting employees may not be familiar with.

It is important for development and accounting to share their relevant knowledge and educate each other. Here are some things each department can do to bridge the gap.

Development

  • Grants and contributions: When applying for a grant or soliciting contributions be aware of the language used in the grant application or appeal. The language included in the solicitation could unintentionally create a restriction on the use of the funds. If you request a grant or contribution for a specific program or purpose, you must use any funds from the solicitation for the restricted purpose. Support, such as the grant application and final award agreement, donor solicitation, and any letters that accompany the contribution, should be provided to accounting – this ensures proper recognition of revenue in accordance with grant terms and donor intentions. Collaborate with accounting prior to a campaign or appeal to discuss the desired use of the funds to be raised – and review the structure and content of solicitation materials – to be distributed to donors – to ensure the accounting treatment will be consistent with development’s intent for the effort. Remember, donor intent will be implied to be consistent with any restrictions conveyed in solicitation materials for resulting contributions.
  • Pledges: Notify accounting of any pledges made, whether verbally or in writing. It is important to note that the full amount promised for all years included in multi-year pledges are recognized on the date the pledge is made, and not when each payment is received. Failure to communicate receipt of a pledge in a timely fashion can result in understatement of revenue and possible recognition in the wrong fiscal year.
  • Other fundraising methods: When getting involved in new fundraising methods, meet with accounting to go over the process involved and any other details of the method that could be helpful in determining the proper revenue recognition and treatment of funds generated. Share underlying agreements and contracts, if applicable.

Accounting

Educate development on some key concepts related to accounting recognition of the funds they are raising. Some concepts to discuss include, but are not limited to: conditional vs. unconditional and revocable vs. irrevocable. An overview of the various types of split-interest agreements may also be helpful. The idea is not to teach how to account for these transactions, but how to identify transactions that need to be evaluated for proper accounting treatment.

Periodically, meet with members of the development department to discuss any new grant proposals in process, new funding sources, new methods of fundraising, new campaign initiatives, and any related financial reporting requirements. This will allow you to determine proper accounting treatment of such transactions on a timely basis.

Teamwork and communication are essential to the success of any endeavor. Together, the development and accounting departments of a not-for-profit organization can have a significant impact on achieving the organization’s mission.