Closing the Books

By | Accounting, Nonprofit | No Comments
person with calculator and ledger at desk

Month-end close for everyone in accounting can be a stressful time. From the people involved, documents needed, processes to follow, and books to reconcile, closing the books is a task that you might not be looking forward to. The good news is, there are some best practices that we can offer to help streamline your end-of-the-month routine, making it more efficient and less stressful.

Teamwork Makes the Dream Work

Start by taking a look at your team. Every person in your accounting department plays a crucial role in the success of your end-of-month closing. Ask yourself, is everyone on the team properly trained? Do they understand their tasks and goals? Most importantly, do they feel motivated and empowered?

You can help motivate your team in many ways. Setting daily deadlines to keep everyone on track is a good place to start because it removes any ambiguity when it comes to employees understanding their roles. But more importantly, find time to celebrate and acknowledge when employees hit milestones, conquer large projects, or just for sticking with the team during the good times and the bad. Days off and bonuses certainly help, too. But also, you can offer opportunities to cross train when it’s not so busy, so that as a group, you’ll gain different perspectives and understanding on the overall closing process.

Go with the [Right] Flow

What does your close process look like? First and foremost, you should absolutely have a structured procedure, preferably with a checklist document available to everyone on the team. This keeps things clear and organized not only for month’s end, but quarterly and year’s end, too. If your team doesn’t have a checklist, now would be a good time to come together and create one. Find out where the gaps are, if there’s any overlap, and then assign accordingly.

Be willing to adjust the checklist as needed, too. Times change. Departments change. Technology changes. Being willing and able to adapt as a team will help prevent your close from becoming inefficient and cumbersome.

Finally, might we suggest giving your team a “rest day” after that whole checklist is complete? Coming back to the idea of the team feeling motivated and empowered—knowing there is a light at the end of the close-out tunnel and something nice is waiting for them is sure to boost some spirits when stress is running high.

Document Management

For the most part, gone are the days of file boxes and manila folders as companies embrace digital folders instead. The problem is, if there’s no organization to this electronic filing system, your team can very quickly have a spaghetti bowl of information needing to be meticulously sorted through every month.

Creating an organized document hierarchy can provide your team with an easy to navigate, top-down approach to digital filing. For example, a structure may look like this:

“Entity > Year > Month > Process > Policies/Procedures/Supporting Docs/Reconciliations”

Having a periodic folder structure allows the team to easily view the monthly close, make the review process faster, and provide a central location for all related documents. Plus, it allows for repeat usage year after year.

Reconciliation: Excel and ERP (Enterprise Resource Planning)

Excel is widely known and widely used in the accounting industry. It’s safe to say that almost every accountant knows their way around Excel. But when it comes to the end of the month’s reconciliation, does Excel provide the most efficient options? Whereas it’s a familiar program that most accountants are comfortable with, it lacks the ability to automatically integrate input from disparate data silos, typically leaving one person in charge of manually managing it. ERP is an integrated suite of software applications that businesses can use to run almost every aspect of their organizations. Disparate systems often hinder data sharing, too. It’s hard to get what you need when you have to ask colleagues to run reports or wait for someone to come back from vacation to access a system. With a good ERP, access can be shared among all employees. Levels of data visibility can be controlled; of course—the CFO needs different data than the receptionist. But all employees have the opportunity to view many aspects of organization wide data. This enables shared, improved decision making and collaboration, reduces data silos, and makes it much easier for all to work towards finishing that close-out with ease and while reducing risk of errors.

Challenges and Opportunities

There are many challenges and opportunities available in the Closing of the Books process. Being aware of various challenges in each step of the analysis process can help you avoid or overcome them.

Data has always provided accountants with powerful information. Now, more than ever, with access to so many software tools to gather and utilize data, accountants can provide useful and valuable insights to benefit others. And with the right combination of employee satisfaction, clear and concise processes, document management, and reconciliation tools, your close outs can become a little less daunting and a little more efficient.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Avoid These 5 Common Financial Statement Errors

By | Accounting, Nonprofit | No Comments
person sitting on sofa with open laptop and credit or debit card in hand

Common financial statement errors can undermine the credibility of a nonprofit organization and can also make compliance reporting difficult, resulting in audits, fines, and other problems. That’s why it’s essential to be aware of the most common financial statement errors found in small- and medium-sized not-for-profit entities, so you can watch for and avoid them.

5 Common Mistakes

They say to err is human, but your work must be superhuman when it comes to keeping accurate financial records for nonprofits. Even a seemingly small mistake can tremendously affect decision-making within the organization. Here is a nonauthoritative illustration of five financial statement errors commonly found in small- and medium-sized not-for-profit entities. This is not a comprehensive list of all possible misstatements, so be sure to review each financial statement thoroughly.

  1. Statement of Financial Position Errors

There are several reasons for errors in the statement of financial position, including missing or invalid entries in the general ledger or errors in drafting the statement of financial position by including general ledger accounts on the wrong line item.

There are a few possible errors when using a classified statement, including displaying current assets without current liabilities or incorrectly disaggregating cash and restricted cash. 

In addition, it is common to record conditional promises to give as revenue and receivables, trust or foundation receivables before the grantor formally awards the grant, or deferred revenue for amounts received under a grant instead of recording time- or purpose-restricted revenue, especially when the grant is a time- or purpose-restricted contribution rather than a true cost-reimbursement arrangement.

Another common mistake is not including one or more of the required totals: total assets, total liabilities, total net assets, net assets without donor restrictions, and net assets with donor restrictions.

  1. Statement of Activities Errors

A nonprofit entity quantifies its revenue and expenses in a Statement of Activities. This is the same as a for-profit income statement.There can be errors here, such as omitting one or more required totals, reporting contribution revenue that is due in future periods as net assets without donor restrictions, or not recognizing solicitation costs.

Additionally, revenue transactions may not be properly classified, expenses may be improperly included in net assets with donor restrictions, and fundraising expenses may not be reported.

  1. Statement of Cashflow Errors

The Statement of Cashflow bridges the income statement and balance sheet by summarizing the amount of cash flowing into and out of an NFP organization. There can be several common mistakes here, including not netting investment purchases and sales, not displaying donor-restricted capital contributions as a financing activity, and not displaying noncash gifts for endowment or property, plant, and equipment.

There may also be errors in netting property, plant, and equipment purchases and sales, borrowing and repaying long-term debt, and failing to include payables and receivables related to investing as investing activities, securities lending activities, and financing activities.

  1. Statement of Functional Expense Errors

An organization’s functional expenses statement shows how expenses are incurred for each functional area. In a statement of functional expense error, managers of not-for-profit organizations may omit certain applicable expenses on this statement or fail to include them in their financial statements altogether. 

A few common errors of this type include failing to include certain expenses in the statement or other presentation and improperly allocating management and general expenses to other functional categories.

Including a function or program line item within the listing of natural expenses and failing to report information about all expenses in one location are other mistakes often seen.

  1. Errors in Notes to the Financial Statement

Notes to the financial statements convey information not readily apparent or not included in the financial statements themselves that are necessary for presenting the financial position and results of operations fairly. 

Common mistakes may include failing to reveal the required disclosure when presenting prior year summarized financial information; i.e., failure to disclose an adequate description of the organization’s activities, including each major class of programs, the capitalization policy for property, plant, and equipment, and discount rates used in present value measurements, such as in measuring unconditional promises to give or split-interest agreements.

Information about the nature of donor restrictions on net assets, the nature of board-designated net assets, the programs and activities for which in-kind donations and contributed services were used, and advertising costs should also be correctly disclosed.

Avoiding Financial Statement Mistakes

To avoid these common errors, it is important for a nonprofit to formally document its accounting processes in detail, including how to accept and deposit donations and pay bills. If your nonprofit doesn’t regularly back up all accounting and tax information, now is the time to start. Meticulous record-keeping is critical to avoiding errors.

Nonprofit expense accounting can be complicated and, as humans, we all make mistakes now and then. You can prevent material misstatements by developing a comprehensive monthly and year-end checklist with your accounting team. In addition, software designed to utilize the most up-to-date best practices will help you avoid these common errors and more and will ensure compliance when reporting transactions.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Accomplish More in Your Accounting Business with Mindfulness Meditation

By | Accounting | No Comments
person sitting in sunset

Mindfulness may seem like an odd topic in the world of accounting, but it’s a topic worthy of your consideration for several reasons. Practicing mindfulness can reduce stress, improve focus, and help you accomplish more in your accounting business. It’s easier than you think to begin a meditation practice. All you need is a comfortable place to sit and breathe.

What Is Mindfulness

Mindfulness is a mental state achieved by focusing on the present moment, including thoughts, feelings, and bodily sensations, without judgment. According to Jon Kabat-Zinn, author of Full Catastrophe Living (1990), mindfulness has seven basic pillars. 

Non-Judgment: You must become an impartial witness to your own experiences without judging or categorizing them. By doing this, you release yourself from the patterns of reacting and repeating thoughts, feelings, and actions.

Patience: Cultivating patience means you accept that things happen in their own time. You allow yourself kindness and compassion so you can deal with the situation as it is instead of trying to rush through it.

Beginner mind: A beginner’s mind watches as things unfold with curiosity, but without trying to force or control a situation, much like a child seeing things for the first time.

Trust: Learn to trust your own feelings and believe that no one knows you better than you. You don’t have to look outside of yourself for understanding.

Non-Striving: Non-striving means you release the need to constantly change a situation or feeling. 

Acceptance: Let yourself see a situation for exactly what it is without imposing your feelings as a filter. Focus on the here and now, not the “what if.”

Letting Go: Instead of clinging to a desired outcome in a situation, learn to let it go. Regardless of your feelings, what needs to happen will happen, so just let it be.

Why Mindfulness Is Important for Success

Mindfulness is critical for success as an accountant because the skills you cultivate while practicing mindfulness will also carry over into your time management, productivity, and ability to handle stressful situations at work. 

You’ll interact better with your accounting clients through the practice of mindfulness. You’ll communicate more clearly, collaborate more fully, and develop a stronger sense of wisdom to help you confidently advise your clients. 

This starkly contrasts with the modern mindset of “push, push, push” to be in control, work more, and accomplish more, which is a common mindset among accountants who feel the pressures of handling multiple accounts, clients, and deadlines. But a Control Mindset actually creates a lack of control because it forces you to look beyond the here and now and focus on everything at once while accomplishing very little.

Meditation: It’s Not What You Think

So how do you learn to be more mindful? Meditation is the key to a more relaxed, mindful state of mind, but meditation isn’t what you think. You don’t have to sit on the floor with your legs crossed, chanting “Om” to meditate. In fact, there are many ways to meditate, including a relaxing walk, yoga, or even dancing. The most important thing to understand is that mindfulness meditation is a practice. That means it’s an ongoing thing, not a once-and-done activity.

To do it, just find a quiet place to sit, and wear something comfortable. You can even practice at work on your lunch break if you’d like. Consider an app like Insight Timer to give you a gentle alarm after a certain time has elapsed, so you don’t have to worry about meditating too long and being late. Other helpful apps are Calm and Headspace.

Once you are seated comfortably, close your eyes, and focus on your breath. Breathe in and out through your nose and pay attention to the rise and fall of your belly. When thoughts cross your mind—and they will—just witness them. Let them float past like a leaf floating on a gentle stream. Then return your focus to your breath again. If your mind wanders and you get lost in a thought or feeling, just acknowledge it and then return to your breath. When you first start meditating, this will happen often. Don’t worry. It will get easier the more you practice. You can start with just five or ten minutes of meditation; over time, you may build up to 20 minutes or more. Soon you’ll wonder how you got through the day without it.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Where Have All the Accountants Gone? Fixing the Accounting Employment Crisis

By | Accounting | No Comments
accountant at desk with spreadsheets and laptop

There’s a crisis going on right now in the accounting profession, one that’s probably gone unnoticed by many—until they post a help wanted ad. Then, it quickly becomes apparent that the applicant pool has shrunk. And, among those who are applying, the requisite skills for some specialized jobs, such as nonprofit accounting and auditing, are lacking.

What’s going on?

According to the CPA Journal, fewer people are majoring in accounting in college, and fewer still are entering the profession once they become part of the workforce. For every accountant who retires, there are fewer and fewer to take their place. This problem hasn’t gone unnoticed. The SEC issued a warning that the lack of CPAs may create financial reporting problems in the future.

Yes, Baby Boomers are retiring, and fewer people are entering the profession, but there are also myriad other factors at play. The pandemic exacerbated many of the profession’s challenges, encouraging some to take early retirement and others to cut back their working hours to spend more time with family. Others simply decided they’d had enough of the long hours, stress, and lengthy commutes to work, and chose to step back from their careers either permanently or temporarily.

Many professions are undergoing similar challenges. What can we do to encourage more young people to embrace accounting as a profession and to ensure that there are successors in place for the much-needed CPAs in our companies?

Improve Perception and Increase Awareness

Let’s face it: the accounting profession has a branding issue. It’s long been associated with gray suited “bean counters” who tap calculator keys all day and manage taxation issues. Few students are aware of the multifaceted and challenging roles that accountants fill, or the many career opportunities in the field. Outreach to schools, mentoring young people, and offering internships in an accounting office are all ways to bring young people in direct contact with accounting professionals so they begin to see that it’s not all number crunching and more about challenging projects, problem solving, and business management.

Additionally, it’s important to let young people know that accounting is a “steady job” —something that not only pays well but is always in demand. In a world in which many jobs have been phased out over the years or lost to automation, accountants will always be in demand no matter how much automation is put into place in the office. Automation can only offset some of the tasks faced by accountants. It cannot replace the critical thinking and problem-solving skills that a good CPA brings to the role.

Steps to Offset the Accounting Labor Shortage

Encouraging young people to enter the accounting profession is the long-term solution. Short term, you may be faced with vacancies that remain unfilled or longer periods when you’re shorthanded. To compensate for those times when there aren’t enough professionals to fill the many roles needed, here are a few ways to offset the accounting labor shortage:

  1. Automate: Okay, so we said automation can’t replace a CPA. It certainly can’t, but it can take many time-consuming tasks off the CPA’s plate. Using a good accounting software platform that incorporates automation into the workflow can save time and enable an accountant to get more done each day.
  2. Focus on critical tasks: When you’re shorthanded, everything seems critical. But what tasks can someone else tackle? An assistant may be able to help with accounts payable or receivable, but the CPA may need to focus on audits, compliance, budgeting, or other critical tasks. Focusing on the tasks only you—the senior level CPA or accountant—can handle and delegating other tasks helps save time and ensures that your much-needed skills are put to good use.
  3. Spotlight high-risk areas: Focusing on mission critical tasks and on high-risk areas ensures that the senior accountant’s time is spent on items of primary importance to the business. Identify risky areas and focus attention on them to ensure they are taken care of properly.

Solving the accounting labor shortage is not something a single individual can do, and it won’t be solved in a day. However, as a profession, there is much that can be done, and our collective focus on the problem and potential solutions should begin now.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.