11 Accounting Pitfalls for Nonprofits

Many nonprofit boards select accountants as their Treasurers.  This is a great idea for the bookkeeping that’s required – but there may be some unique aspects of the nonprofit world with which your Treasurer is not familiar.   Make sure that this list of possible pitfalls gets to your board’s Treasurer. Or, better yet, give it to the Finance Committee and make it part of their Annual Action Plan to ensure that you have not fallen into one of these pitfalls.

  1. Inadequate books and records
  2. Incomplete or Incorrect Federal Tax Return (Form 990)
  3. Failure to report changes in officers or operations to the IRS
  4. Treating employees as Independent Contractors
  5. Non-compliance with state-specific Solicitation of Contributions (donations)
    1. original application and annual submission to state officials
    2. donors receipts and proper disclosure statements
    3. www.nasconet.org and click on US Charity Offices to find your state’s regulator
  6. Failure to complete (federal) Public Inspection Requirements
    1. annual self-test
    2. 33 1/3 % or more comes from public funds
    3. no single sourcing of money
  7. Failure to heed audit charges – or no audits
  8. Failure to comply with Lobbying Rules
  9. Improper Allocation of Revenue and Expenses between activities
  10. Failure to consider UBIT – Unrelated Business Income Tax
    1. ex. Hospice sells clothing (result = fed tax on income)
  11. Issues regarding related entities or joint ventures