Keeping the books for a non profit organization- any advice?

I've been on the board of directors at the local makerspace since May of this year.  Elections are held every six months, so responsibilities tend to get shifted around when new board members are elected.  This time around it turns out I'm the Finance Director, so I need to learn how to keep teh books for the place.

The outgoing Finance Director was given the task of collecting the necessary information and handing it over to me, including his normal activities.  I may have fallen off the turnip truck, but it wasn't yesterday (read as this probably won't happen).

What I have now:

• (viewing) access to the bank account
• Access to PayPal (method of membership fee collection)
• Probably access to something else, but I don't know I need it yet

Our organization is an established 501c3 focused on education.  The primary income is from collection of monthly membership dues that fall into one of three categories.  The paid members get 24/7 access to the space and its resources as well as reduced rates on classes that are offered.  Also, we are 100% volunteer run, so there is no payroll to deal with.

I've been reading up at the IRS website, which has been surprisingly helpful for tax related topics.  But my predecessor does not seem to have been using any accounting software, as he stopped paying for it this past April (???).

As always, any help would be greatly appreciated.  This is the one place I know I can go to when I really need it.

Buy a copy of QuickBooks if they don't already have one and spend a few bucks to have someone help you set things up and go through the various poccedures.  Be sure you account for every dollar.

My wife belongs to a non profit and I offered to keep the books but they chose someone else and he managed to loose 7000 dollars over the year which completely destroyed their budget and caused a fair bit of animosity. 

Find a CPA and keep this one person or firm in place all the time. You can continue to vary the officers but have the finance director be the person who oversees or has the immediate relationship with the CPA. 

Said another way, the paid CPA remains the same and the volunteer officer who checks and balances the CPA varies. 

The big thing is to make sure you don't run afoul of the tax laws, both state and federal. There are income tiers (or there were) that affect what needs to be reported and how. You don't want to miss dates and incur penalties. 

The first step is to look at how the last guy kept track of things, how filed, what he reported and why. You also need to check over the financial side of the bylaws of the organization. You don't want there to be a rule about who can and can't access money that you don't know about. It's fairly common to require one person (the treasurer) to write checks and another to sign them. Not sure how that works with digital money, but following your own rules is pretty important. 

The PTO I was treasurer of followed all of the rules for two calendar years, the two I did it. They were eventually disbanded by the district because they couldn't follow rules. Document the ever living crap out of what you're doing. 

Thank you gents for the input!  I really appreciate it.

And my gut feelings were confirmed without asking- we need an accounting system (whatever it is), we need legal advice, and we need a way to document many many things- for just as many reasons.

I did find the income tiers at the IRS website, so I kind of get that part.  But I have yet to find anything that actually shows which tier we fall into.

Hopefully I will be pleasantly surprised by my predecessor presenting me with the path to follow and how he did things.  But I have a feeling I'm going to have a lot of work to do.

Be scrupulous, and demand oversight from the board.  Even doing that, you will be accused of stealing or cooking the books eventually.

Checks and balances for your protection.  Who oversees what you do?   The accountant mentioned above.  

Our church uses an external and internal auditor to protect everyone involved. 

You didn't mention the range of annual volume of dollars is for your group. I was a finance and membership committee member for two years. We had such a low amount of transactions per year, (three outgoing checks) plus about only 100 members. So the cost of an accountant and/or continuing license for software was going to be a noticable change in membership fees. 

A club isn't the same as a non profit. And maybe a proposal to increase dues/fees to cover a five year contract with two base years and three optional would be something everyone wants to pay for. 

My cousin, who is in a non profit, said that you should plan to have the full annual audit published and double confirmed.  That transparency can also be used to attract donations as well. Donators like to link to published data on how their $10k did X. She also said something like starting a farm with a dozen veagans is a guaranteed way to learn about a dozen ways of being veagan while growing nothing. Everyone will have a suggestion. So make a solid systematic plan and present it as such. Not a piecemeal, let the board choose, method.

In reply to Advan046 :

This info is critical when making your determination. If you're doing thousands of dollars a year in transactions, simple software or ledgers will work. If you're doing hundreds of thousands of dollars over thousands of transactions a year, you need something a more complete and able to handle the volume of transactions error free. Side note: if you're in the latter of the two situations Quickbooks probably isn't for you. Full disclosure: I work for an ERP Software developer and see the results of growing too large for Quickbooks on a pretty regular basis.

In the case of my church, we put in an actual enterprise grade accounting system because the previous treasurer(s) were using multiple separate bank accounts to keep pools of money separate from one another. That works fine if you have a general fund and a roof fund but when they start multiplying (we had 11 or so) it becomes a real problem to maintain and the audit becomes more complex. Complex and problematic is great for the auditor because it provides them more billable hours but it isn't exactly conducive to keeping money in your non-profit to do it's work.

Edit: If your predecessor didn't use a cloud based accounting solution you should own the accounting software suite regardless of if the Software Maintenance Agreement expired or not. That is likely a good place to start getting things organized as most of them provide a chart of accounts and decent control of your GL.

I've done non-profit bookkeeping ad a volunteer going on 30 years.

If you can support the cost, definitely using an accounting software package is worth it.  I've not tried it, or seen if the offer is still current, but there was an outfit called TechSoup that provided low cost software, including Quickbooks for non-profits.

Make sure someone is assigned to keep things like corporate paperwork up to date -- state secretary of state for corporation, etc.  Make sure no one loses your 501(c)3 determination paperwork.

Make sure you get 1099s out if you're paying any contractor more than $600/yr.

Simplicity does depend on how much revenue runs through your books-- per my recollection, if "normally" less than $50,000 and if there's no significant non-member revenue, you can get by with a postcard 990 filing to the IRS.

Willing to provide any additional advice I can if needed.

Also, do some looking around for your banking business-- among other things, check into what it takes to change signature authority on the account.  

The bank we work with just changed their procedures so we don't have to assemble all of the folks with signature authority in one place to make a change.  That was a pain.  Now we just need the primary (treasurer) and anyone being added in the same place, and those being removed don't need to be present anymore.

Honestly I don't know how much money passes through the organization per year.  The outgoing financial guy never presented a written report of any kind since I've been on the board.  He's verbally rattled off some of our expenses off the top of his head, but none of it was recorded.  Essentially his reports to the board (when he shows up to a monthly meeting) have been "we have enough money in the bank to stay open for two months" or the like.  From what I know currently, I'd estimate we are right at the $50k mark.

As far as taxes go, I'd bet he has filed the e-postcard, regardless of what income group we fell into in the past, because it was the easiest for him to do.

I'm still sorting though many scanned "important" documents to see what we still have.  I'm pretty confident others on the board, or even past board members, safely stashed away important documents recognizing this fella couldn't be trusted to do it.

Looking at older board meeting minutes, it seems we used to pay for Xero cloud-based accounting, but he cancelled the service in April, and there is no record I can find of the login information.

I know this won't be easy, but I'm pretty confident it can be straightened out.  As I've done in the past I'll learn as much as I can, present it to the board members and take direction from them.  But right off the bat, I'm going to make it very clear what I think we need to fix things- proper software and legal help.

I have a close friend in NYC who does this basically full time for a bunch of different non profits. Ill ask her to see if she can point you in the right direction. 

In reply to Mellonmorse, Brian Cougar :

In that case you don't need anything like what I deal in, there are benefits but the upfront costs and maintenance, both software and hardware, will be more than a "small business" type package and it sounds like that money would be better spent on your mission until you get things straightened out.

It would probably be worth having a conversation with Xero to see if there is any data up on the cloud. Even though it's cloud based the non-profit should be able to retrieve data in it's own name and I'm sure the data still resides somewhere because storage is cheap and there's probably liability involved with deleting someones financials. Both Quickbooks, Xero, and Freshbooks offer conversion tools from one another so if there is data you should be able to migrate it.

After that my best advice is to really think through your chart of accounts. They're one of the few things which most software packages rarely allow you to do more than add segments. Make sure you allot enough characters to the primary segment to cover the assents, liabilities, equity, revenue, and expenses you currently deal with and allot room for expansion. A poorly setup chart of accounts makes running the organizations finances much more difficult so spending some time on it really makes life easier in the long run.

After that it's really just learning AP/AR and setting up the financial reports to reflect the data you need. It's a lot easier when you're not dealing with inventory.

I was the treasurer for our local Habitat for Humanity for a few years.  The organization had used Quickbooks prior to my stint, I got the latest non-profit version from http://www.techsoup.org/.  They have quite an assortment of hardware and software available for a small fee to support the organization (I have no relationship with them).

You might also want to think about dual control of all cash accounts.  Requiring two signatures from organization officers for all checks and cash withdrawals is a bit of a PIA, but it reduces the chance of embezzlement and other nasty surprises.

Finally, consider a method to backup and to share your Quickbooks file with your CPA for audit purposes.  This might be as simple as a flash drive, but you also want to consider what happens in the worst case, like the house burns down and takes the computer and the flash drive with it.  At minimum, having a plan to rotate copies of the data file offsite.  Having a secure online storage option works as well.

Depending on your needs, signing up for access to Google business - free for nonprofits - would give you access to website hosting, online office apps, and fairly secure storage.

This is all great advice, thank you everyone for sharing experiences.

I have a good bit of research to do now, and I'll report back when I start figuring things out.

Make damn sure you are not an American living in a foreign country while doing this kind of volunteer work. It means that you need to file both local and US taxes for the charity. It gets real complicated real fast.

I was able to meet my predecessor at the bank the weekend before last.  There were six names (!) on the account, two of which have not been members in at least two years.  Good grief.  Luckily this bank allows us to remove names without the folks being there, but all must be present to add signers to the account.  So it's my predecessor and myself on the account now.  I stopped by the bank today to pick up my check card and realized they spelled my first name "Briam" instead of "Brian."  Good grief again.

Tomorrow is our first board meeting since shuffling responsibilities, so I went back through the bank statements a couple months to try and show a little history.  I have a membership report showing the number of people and the level of membership they pay for.  Then I did a financial report based on the bank statments showing total income from three collection methods (Paypal, Rerun and another one), then listed more detailed info from checks and payments so we can see who we pay and how much per month.

Based on what I've seen so far, we are right on the edge of $5k per month, which will put us out of the post card tax category.

As I said I plan to offer these two reports to the board, then recommend they consider buying an accounting package and hire an accountant to help us set it up.  Then we should deal with taxes (with an accountant) when the time comes.  Lastly I will strongly recommend at least one other active board member become a signer on the bank account.

Did I miss anything?

Keep in mind that all of your finances are viewable or accessible to the public.  Being cryptic is sometimes good.

Our 501c3 had a holiday party several years ago and the board donated food and sodas, but the bank account bought about $70 worth of wine and beer - with the full approval of the board and staff.  Our office manager put it in quickbooks as "holiday party alcohol" which was a proper description that avoided future confusion, but at the yearly open meeting, one of our haters decided to write an editorial in the local paper about how we waste our money on liquor.  Internally, it was perfect.  At the end of the year, our accountant was able to clearly see what each expense was.  Since we are a public non-profit, it caused issues.

Have a category for everything.  Don't be too complex with hundreds of categories but just "deductible" and "non deductible" won't cut it.  I don't know what your organization does - mine is a community theater - so we have some general categories like "building maintenance," and "marketing" but then we also have "set/paint", "lights/efx", "sound", "design" and a few others for each individual show we produce.  It makes the P&L sheets a bit complex, but its worth it.

I'm no expert because I'm the tech director, so my involvement with that process is just preparing budgets and submitting expense spreadsheets for my technical expenses, but with only 4 of us in the building we all kinda share jobs from time to time.