Nonprofit housing developers need an accounting system that can record receipts and disbursements and provide comprehensive management reports while allowing external control to be maintained. This provides the project manager a full accounting of funds that have been spent. Technical assistance in setting up and maintaining accounting systems can be rendered by an accountant or bookkeeper who is an employee or an accounting professional performing as an independent contractor. The best method is the one that produces the type of information that the nonprofit developer needs - and defining the "end result" is the best starting point for making this decision.
Things to consider when deciding on the accounting/bookkeeping method:
 Size
and scope of the project - one house at a time or several ongoing?Reporting
requirements of the funding sourcesCapabilities
of in-house staff in managing a project accounting systemBudget
for financial management staff and/or hired professionals |
Size and scope of the project
The small project - For the small project that has few contractors, a modest budget, and limited funding sources, a person with good computer skills and basic bookkeeping knowledge should be able to set up and maintain an accounting system using a basic accounting software program such as One-Write Plus or Quicken. These are very basic accounting software programs. They also provide features which allow banking, check writing, basic income and expense tracking and reporting. Based on the size and needs of your project, a basic accounting package may meet your needs. With a basic accounting software package you may find it helpful to incorporate a spreadsheet program such as: Lotus 1,2,3, Excel or Quattro-Pro to design specific reports that will meet the needs of your organization's Board of Directors.
At a minimum, the system should account for:
| Current
Assets - Including cash on hand, grant revenue received, real estate
development in process, other property and equipmentCurrent
Liabilities - Including mortgage loans and construction loans payable,
payroll, grant advances, and taxesRevenue
and Support - Including grants received, interest earned, dividends,
donations, net assets released from restrictions, and money generated from
special eventsExpenses
- Including general administration and operating expenses, program-specific
expenses, and depreciation |
All other projects - It is recommended that the nonprofit developer with no accounting expertise on staff work with an experienced accountant or bookkeeper to select the best method of accounting, whether it be done off premise by the accountant, or in-house using an accounting software system such as Peachtree or Shaker Coins Software. Although all accounting software must function in accordance with Generally Accepted Accounting Principals (GAAP) many of the basic accounting software applications do not provide practical audit trails integrated into the software program. The more sophisticated applications provide strong built-in audit trails. These applications are often module designed packages, allowing you the flexibility to design a system that is tailored to your projects particular needs. This would include project cost tracking and forecasting, budget reports and adherence reports, multi-user network capabilities and inventory management.
The best way to approach this is to determine what information you wish to yield as the final product, and what types of reports would be required to satisfy lenders, auditors, state and federal program regulations, and your board of directors.
The ability to perform the following operations is recommended (at a minimum):
| Financial management plan: |
| 1. explanation of source and amount of initial capital 2. development of an monthly and yearly operational budget 3. development of monthly cash flow and return on investments 4. projected income statements and balance sheets for a two year period 5. discussion on the "break even" point 6. explanation of the balance sheet 7. discussion of who will maintain the accounting records 8. discussion of how the accounting records will be kept 9. provision of "what if" statements that address problems that arise 10. discussion of controls to be put in place for accounting procedure 11. review of bank statements, purchase order system, check signing requirements |
Reporting requirements of the funding sources
Selection of an appropriate software application will also be determined by the reporting requirements of the program. Lenders and program funders usually make it very clear at the start of the development program what type of financial reports are required, their frequency and what they must contain.
At the minimum, a nonprofit developer can expect to generate:
| Monthly
financial statements to board members or officersQuarterly
financial statements to lenders or fundersSemi-annual
statements to investors, shareholders and other stakeholdersAnnual
year-end reportAnnual
fiscal auditSpecial
financial reports, as required |
Capabilities of in-house staff
If your project is small with a limited number of accounts, funding and activity and you do not have a bookkeeper on staff you may decide to hire a bookkeeper or para-accountant on a part-time basis or in the capacity of an Independent Contractor. This allows you to reduce your payroll expense and pay for services on an "as needed basis."
For a project on a larger magnitude with numerous funders and more complex accounting requirements, a full-time staff bookkeeper or para-account will be required.
Regardless of your accounting needs or the software you choose, it is important to develop a relationship with a Certified Public Account who is available to review and offer guidance in setting up your accounting system, filing year end reports and overseeing requirement adherence.
Budget
Although accounting/bookkeeping services and software can be very costly, it is not wise to cut back on these services to save money. It is particularly important as a nonprofit developer to pay for the very best accounting services or support available as most funding sources require current and accurate fiscal information in order to fund a project and continue funding in the future. NOTE: Be sure to include the cost of accounting and annual audit in the projected budget for administrative costs.
For a small development agency with fewer than 10 housing units, expect to pay between $3,000 and $6,000 for an annual audit and fees between $25 - $100 per hour for accounting services rendered. For moderate and larger size projects of 10 units and more expect to pay $5,000 and up for you annual audit. Remember, the clearer your audit trails and financial records, the less time it will require to conduct and audit and the less costly it will be.
OHIO CAPITAL CORPORATION FOR HOUSING