(Disclaimer because I have no legal or financial credentials! Just practical tips based on experience: Information in this post is provided for general educational purposes and not as legal or accounting advice. Consult a lawyer or accountant for professional advice. Links at the bottom for some great resources on this topic.)

For the financial systems post, I have a case study to share and illustrate the importance of keeping good financial systems around fundraising.

Doing thing may seem like an obvious thing. Money, especially public funds (charitable gifts) should be managed with diligence, transparency and respect. However, fundraising is often very focused on the elements of relationship-building - connecting, conversations, soliciting and stewardship. All of this is vital, of course, but it is all too easy to let the financial systems slide (especially for small or grassroots organizations) and we really must keep a healthy balance.

The main financial systems to examine are:

💰 Tax compliance - ensuring your accounting procedures provide you with accessible records that can be effectively applied to annual charity tax reporting; ensuring charitable tax receipts are fully compliant

💰 Revenue tracking/reporting - accurately and consistently recording transaction data as it comes in; efficiently pulling data for internal reporting needs (ie. board reporting or evaluation/benchmarking)

💰 Accounts reconciliation - a checks-and-balances system to ensure you are processing all revenue in accordance with your procedures and issuing appropriate receipts (doing this regularly also makes year-end tax filing much easier)

Couple things to note: 1) The list above descends in order from a high-level to a more granular operational mode, and you can imagine how all these systems are related and interdependent; and 2) yes, this is kind of dry. I know this is gold for some people but I am not one of those, and I do sympathize with my fellow right-brains who would rather mail a bursting shoebox of receipts to our endlessly patient bookkeeper and just be done with it. 

But, no! We are leaders, who embrace a full understanding of the organizations we manage! And we are better for it!

So let’s get on with the story:

Client:

A small charity in a growth phase. Running for just over a decade, they have grown from grassroots to a small/ambitious team with a vision to expand programming across the country.

Financial Systems in place:

• External bookkeeper keeps the ledger and helps with year-end tax filing

• Donor Management System (DMS) to track revenues coming in and issue tax/business receipts

Challenges:

• While there is a DMS, recording transactions has been inconsistent and there are no established procedures for gift processing, resulting in missing and inaccurate records

• No process for regular reconciliation of accounts, resulting in time-intensive searches for missing records

• No procedures/rules in place for receipting resulting in additional confusion

What we did to address the challenges:

• After a lengthy period of “clean-up” - identifying record gaps going back several years, and re-organizing the files and database, we established two key systems, with multiple procedures and assigned roles:

  • Gifts processing procedures established for both online/automatic and manual entry.

    Result: All records are entered into the CRM consistently and appropriate, compliant tax receipts are issued in a timely manner.

  • Monthly reconciliation procedures established - checking the gift processing records against the bookkeeper’s leger on a regular basis.

    Result: tax receipt or coding errors are flagged and addressed quickly; missing deposits are flagged to be entered into the CRM (or noted if not applicable).

Overall outcomes:

• Improved transparency and accuracy leading to better financial reporting

• Organization is better prepared for its annual tax filing

• Significant time is saved by taking proactive steps to prevent missing and inaccurate records

• Confident (and more satisfied) staff, who have a clear understanding of the inputs and outputs of the systems, how to find information and their responsibilities

As with all systems, it’s always good practice to check-in periodically to see if it is still doing the thing it needs to do, and making adjustments accordingly. It’s also important to build systems that will work for your specific needs, because all organizations are different!

I am thrilled we have this post done and dusted. It is critical to have effective financial systems in place for your fundraising, especially if your organization is in a period of growth/scaling up. Our next Root System, Data Management, is another foundational element of any fundraising program that can be rather technical, but if you nail this one - the 🚀 SKY IS THE LIMIT 🚀when it comes to your fundraising. Woo! Can’t wait :)

Nonprofit financial systems resource links:

Canadian Charity Law’s Tax Receipting Kit by Mark Blumberg

Nonprofit Financial Management: Who is Responsible by Michelle Sanchez

Previous Systems Series posts:

#1 - Introduction

#2 - Case Development

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📧 Send me a note if you have any questions!

📋 Also, if you haven’t yet, click here to download the Fundraising Operations Checklist for your own systems assessment