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UNDERSTANDING FUND ACCOUNTING - CONTINUED UNDERSTANDING FUND ACCOUNTING - CONTINUED

4. REGULARLY REVIEW FUND BALANCES

Accounting personnel should review fund balances and activity on a regular basis to ensure
that what is being reported appears to be in line with the operations of the organization.
For example, if the organization recently received a large donation to be spent on a specific
project, but that project’s fund balance does not reflect the donation, an interfund journal
entry may be needed to move the financial resources from the general fund to the project’s
fund.
FUND ACCOUNTING BEST PRACTICES
5. CONSIDER PROVIDING DONORS WITH A LIST OF PROJECTS TO SUPPORT
1. USE ACCOUNTING SOFTWARE DESIGNED FOR FUND ACCOUNTING
If a donor stipulates that their donation be used for a purpose for which there is not already
Choosing an accounting software application that fits the needs of your organization is a restricted fund set up, a new fund will need to be created. By providing donors with a
important to effectively implement fund accounting. Key features to look for in accounting list of projects to support, (1) they may be more likely to donate due to awareness of how
software include fund segregation, grant management, detailed financial reporting, their donations will be spent (2) they will choose to donate to a fund that already exists
budgeting tools, donor management, integration with other systems, a user-friendly and for a project that your organization is promoting, eliminating the requirement to create
interface, and scalability. While general accounting software can be adapted to meet the a new fund.
needs of a nonprofit organization, such as using classes in QuickBooks to segregate fund
activity, specialized nonprofit accounting software, such as Fund EZ and NetSuite, offer Fund accounting is an essential tool for nonprofit organizations and specifically religious
additional functionalities that are better suited for large organizations with various funds. institutions that manage restricted and Board-designated funds. By categorizing funds based
on their purposes and restrictions, fund accounting enhances transparency, accountability,
2. CATEGORIZE FUNDS BASED ON PURPOSE AND SOURCE and compliance, ensuring that funds are used as intended. While it can be complex and
resource-intensive, with the right systems in place, fund accounting can greatly improve
Separate funds should be created for each unique purpose. Activity not designated or an organization’s financial management and performance.
restricted for a specific purpose should be recorded in a general fund. Keep in mind that
too many funds with overlapping purposes can overcomplicate and add complexity to
your chart of accounts. Clear documentation should be retained to support the receipt of
restricted donations and their intended use.

3. AVOID PHYSICALLY SEGREGATING ASSETS aclyn is a member of Cerini & Associates’ audit staff where she focuses primarily on
BY FUND UNLESS LEGALLY REQUIRED
J serving nonprofit clientele. With a strong foundation in nonprofit accounting standards
Although each fund has its own set of accounts with assets, liabilities, and a fund balance, and a nuanced understanding of the operational and compliance challenges religious and
creating a separate bank account for each fund is unnecessary (unless required by donors faith-based organizations face, Jaclyn contributes technical expertise and has a deep respect for
restricting funds) and adds complexity. For example, all cash can be maintained in the mission-driven work. She brings a detail-oriented yet mission-focused approach and partners with
general fund checking account. Money collected for specific purposes will be captured as organizations to strengthen internal controls, ensure regulatory compliance, maintain transparency,
an asset in the restricted fund through an interfund journal entry to move financial resources and enhance financial stewardship.
between funds without having an impact on the organization’s financial statements as a JACLYN CURTI, CPA, MBA | SUPERVISOR | JCURTI@CERINICPA.COM
whole.
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