Christian Spearow | Jitasa

Christian is the General Manager, Bookkeeping & Accounting Services, and has been with Jitasa since the summer of 2010. It was his first ‘real job’ and he’s never left. He currently works as the General Manager of Bookkeeping & Accounting Services, overseeing all accountants here at Jitasa. Previously, Christian was the Director of Client Services, supervising a team of accountants that work with our +70 Boy Scouts of America councils and another team dedicated to serving Unions.

In his spare time, Christian enjoys basking in the great outdoors, playing with his horses and dogs on his little piece of land, and indulging in his passion for the drums. He also serves as Treasurer for the Idaho Diaper Bank, which helps provide diapers to families in need at little to no cost.

Links:

• Sector Education Webinar: Your Nonprofit Chart of Accounts: https://info.foundant.com/2021-10-28GSEdWebinar-YourNonprofitChart_RegistrationLP.html 
• Nonprofit Financial Reconciliation Blog: https://www.jitasagroup.com/jitasa_nonprofit_blog/nonprofit-financial-reconciliation/ 
• Contact Info:
• Christian Spearow Christian.Spearow@jitasagroup.com
• Twitter: https://twitter.com/Jitasa_Group 
• Facebook: https://www.facebook.com/jitasa.group 

Want to see additional resources? Visit resources.foundant.com

Connect with other members of the philanthropic community at Community.foundant.com

Welcome to Nonprofit Coffee Talks, a podcast for nonprofits to listen and learn from their peers. Today, we are privileged to have Christian Spearow as our guest, and we are talking about benefits of active preparation. In your nonprofit accounting. Christian brings a wealth of knowledge and experience to this topic. As general manager of Bookkeeping and Accounting Services at Jitasa means spirit of serving others, and their mission is to improve the effectiveness and efficiency of nonprofit organizations.

And one of the ways they do this is offering accounting services for nonprofit organizations. So this episode, our very own Tami Tilzey sits down with Christian to discuss this very topic. So without further ado.

Here's Tammy

Thank you so much for joining us today, Christian.

Oh, thank you for having me.

Yes, we brainstormed on some of the topics that we could cover in nonprofit accounting and this idea of active preparation. For many organizations, they either just ended or about to end their fiscal year, which means it's audit time. So what would you say? Let's start with maybe the top three issues nonprofits face when it comes to audit and how you would recommend avoiding them.

Yeah, so we get this question a lot, actually, which is great because it means that our clients are thinking about their audit and that they want it to be clean, neat, and obviously as quick as possible. We're really starting in on our 630 year end audits right now. So if you need an audit and you don't have something scheduled currently, I would highly recommend getting that done.

As soon as possible. You don't need to be audit ready to get a schedule. A lot of the times will use the audit start date as a way to determine due dates for different items that we know will need for the audit. But getting back to your question, three things that we typically see is issues really come down to active preparation.

The top issue we see with clients are reconciliations and schedules supporting documentation and expense or grant allocations. So to start with the racks and schedules, when we see issues here, it's either that the schedules or reconciliations aren't done or that the documents that are submitted to the auditors don't match what the trial balances say. It can be pretty common to overlook how a year end change or adjustment can affect a reconciliation.

So, for example, reviewing and addressing still checks at the end of the year. Is a great practice. But remember, you're addressing them if you're addressing them after the bank reconciliation has been completed. You'll need to go back and adjust throughout the reconciliation so that it ties out to your new account balance. So some great ways to avoid this.

Or number one, lock your books This will be this way. No changes will be made accidentally. And a lot of nonprofit accounting softwares or accounting softwares in general have a way to put a password protection as of a specific date number to pull a trial balance and work down many assets, liabilities and net asset accounts one by one to ensure you either have a reconciliation report or a schedule for every account.

This will ensure that no accounts get missed and that you've got something for every every account that has a balance on it. Number three, confirm the record and or schedule that you have ties to the trial balance before you submit it to the auditors. It seems like a pretty common thing or pretty simple thing, but it's very easily overworked And number four, we recommend saving documents in a single folder so you know where everything is and can easily access it.

We have our staff save things in a folder titled Send to Auditors. So it's very obvious what should be in there. Doing these things prior to the audit start, ensures you avoid missing any wrecks or schedules and helps ensure that you have the documents that tie to the trial balance before you submit to the auditors. So the second thing I said was supporting documentation.

Again, this really comes back to active preparation. Auditors are going to ask for documents to support expenses and contributions pledges, grants, etc.. So it's important that you're saving these documents throughout the year in a way that's easy to navigate. Easy to access. And it's a document titled in a way that you know what they are. This may vary depending on the organization, but we save documents by fiscal year, then by month then have each month broken down into different folders, including accounts payable, accounts receivable, payroll reconciliation and monthly items that could be you know, things like prepaid schedules or fixed asset schedules.

So it's good to know these things don't need to be a physical copy either. They can be electronic especially in the world of COVID. Many audit firms are doing 100% remote. So everything else with digital anyway. So we say, do yourself a favor and declutter your now home office and get everything into your server and just shred the paper.

Copy the once you have a digital copy, there's no need to that physical document anymore. So the third thing I mentioned was expense and grant allocation. So this is really two different but related things that tie to a couple of different pieces that can cause issues. So first, let's talk about expense allocations. When I say expense allocations, I'm talking about allocating your expenses between your programmatic, administrative or fundraising activities.

Your auditors are going to refer to this as your functional expense allocation report. And trust me, it's not something that you want to come back to a year round and try to figure out throughout your fiscal year. You should be capturing, at a minimum, two things for every expenses a part of your geocoding. What is it and what is it for?

Typically, the expense account will take care of the what is a question signifying that it's for supplies or travel or consulting. But additionally, it's important to enter the what is it for question specifying if it's a program expense and if so, what program it's for? Or is it an admin admin expense? Or is it a fundraising expense? Or is a little bit of each different accounting systems have different ways of tracking this, but there should be a way of doing it by doing this on a monthly basis by expense.

Your allocations will already be completed by the time you get to your fiscal year end. That also ensures that you're doing this accurately throughout the year. If you wait until your end, it'll be hard to remember of that. Amazon order from January was for program supplies or fundraising supplies. So do it throughout the year on an expense by expense basis.

So related to this, and yet somehow entirely different is talking about allocations of expenses to grants. Now I say it's related because a lot of times grants will support a specific program you're running. So, for example, if you're running an after school program, for kids and you get a $50,000 grant to do that, it's pretty easy to say the first 50 grand in expenses that I have goes towards my outdoor school program is for Grant.

Okay. But this gets significantly more complicated when you have multiple grants supporting the same program, or if you have one grant supporting multiple programs. So staying on top of these allocations will make sure you're in close and audit prep significantly easier. Most accounting systems have a way to tie expenses back to a grant. So doing it as a part of their normal coding, that's going to be recommended.

We we do this and you toss it for our clients and it allows us to run a report by a specific donor to show the total income or expenses for the fiscal year. Giving us the exact amount of the grant that we've spent and how much we have left to spend. Now, not get in the weeds too much here, but this conversation about grant allocations does tie back to our first point about having a schedule created.

Many times grants will spend your fiscal year, meaning you have funds from last year that you need to spend in this fiscal year. So disaster. We track that using a schedule for restricted net assets. And a lot of times that's done outside of the accounting system. But it really shows how much funds for each grant were carried over from one year to the next.

Great. Yes, the last thing you mentioned, it sounds like the expense allocations are pretty important, especially when it comes to grant tracking. And I know that can be fairly complex. And also the reporting that goes along with that. Is there anything else with Grant specifically that organizations should be paying attention to on a regular basis?

Oh, absolutely. They're there are a few items that come to mind specifically. First is avoiding double dipping with your expenses and by that I mean allocating the same expenses to two different grants. This is really a big No-No that we see organizations do, and it's really easily avoidable if you're tracking those expenses back to your grants in the accounting system on a monthly basis.

You should then be using the reports from your accounting system to indicate how much you spent towards that grant, where a lot of times we'll see organizations tracking grants using a spreadsheet outside of the accounting system, and it makes it really easy to accidentally apply an expense to two different grants. The other thing that comes to mind regarding grants is budgeting and applications We see issues here when the person applying for Grant doesn't have a frequent line of communication with the finance team.

As I'm sure you know. Planning for grants is a hard thing to do because you don't really know which ones are going to come in and which ones aren't. Especially for new grants. We see problems here when someone will budget submit budgets as they apply for multiple grants, but those budgets exceed the organization's budget for a certain area.

So, for example, say you apply for three grants and one of the line items on those grant budgets is $40,000 for your part of your program director salary. That's fine. If you pay your program director $120,000 a year. But what if you pay them $80,000 a year? If you're awarded all three grants, you now have money restricted for a specific purpose that you aren't going to be able to spend in a way that it was submitted.

So because of this, it's really important that the people apply for grants are in close communication with the finance team and everyone has a good gauge on as good a gauge as possible on the likelihood of receiving those funds.

Wow. That that does really put a perspective on it. Thank you for that or that example. But you know, in that example, what happens if if someone does receive all three grants?

Well, it really can vary depending on the organization, the grant or what the total variance is. But most often what we see is that the organization has to go back to the grant or ask permission to modify the budget that was submitted and reallocate those funds. Now, some grant ers won't have a problem with that, but some will.

And as such, it could potentially be damaging for a relationship with a new grant or so giving in, just kind of giving them the mindset that if you're already having to change things so early in this relationship, what will the future hold? It's best to just avoid the situation if you can. And it really is an avoidable issue.

That's tricky. And as we've talked about on other podcasts, just having that great communication with your grant team, which includes the finance team as well, will help help that coordination and avoiding that situation. Oh, so there's there's so much to think about, but I want to get back to the theme I saw in your first few answers. And, and that's one of this active preparation.

You mentioned this with the audit and the the issues you typically see there. But outside of the audit, just looking at a well functioning nonprofit organization, are there things that they can actively prepare? In the finance and accounting realm, that the out things run more smoothly?

Oh, absolutely. So there's always things that you can be doing. And honestly, a lot of it comes back to having a solid foundation to start from. And I don't mean a foundation like a charitable foundation I know we're talking about nonprofits here. I mean, the structure in which your organization is built on. So to to really grossly oversimplify the accounting realm, it's a series of regulations and rules that you have to follow.

Again, that's a gross oversimplification. But, you know, to maintain your organization's finances is kind of the same thought process. So follow the rules and regulations, a.k.a. company policies that your organization has set in place. If you don't have any, it's really hard to know what to base decision to about in the accounting world. This really starts with how you track your revenue and expenses.

So this is known as your chartered accounts you talk to has a webinar we'll be putting out later in October that goes pretty in-depth into this but it's a very important piece of your structure because it really determines your reporting, your information needs your department set up, etc., etc. It needs to be complex enough to track all of the information you want to report on, but not so complex that you need your CPA license to really understand it.

You have board members that need to understand what they're looking at when they're looking at financial statements. Another foundational item is having the proper support from your board, while not necessarily accounting related. Having the proper board support is crucial for an organization's success. You need people on your board from all different aspects of life because that gives you a wide diversity of views on different issues that you'll run into.

I typically tell clients if you can get an accountant or a lawyer, an artist, and then someone from the programmatic field in which you operate all on your board, you've got the makings of a very solid board. Not only will they be able to give you solid business advice on how to run the organization, but they're also going to be balanced in their individual strengths.

And perspectives. You know, as an accountant, I am not the guy you want to play in your annual gala. You can trust me on that one. But I bet you that an artist would be, you know, able to plan one heck of a creative function. And they've got different skill sets and insights that I just don't have. So having a balanced board that is able to support you and is active in their roles is is really crucial.

Lastly, I would highly recommend you do your research ensure you have the proper policies in place as an organization that will help you further your mission. So talk to other nonprofits in your area. Talk to other boards, talk to your state charitable councils. These are great resources to lean on to make sure you have the right type of policies in place.

For example, one policy I really wish we saw more wrote is a gift acceptance policy. This would talk about when you're willing to accept contributions in what format and from who. This kind of policy gives your staff guidelines on when you are not willing to accept gifts. And I know what you're thinking. Why on earth would I say no to money?

But keep in mind, not all contributions are cash. So there are gifts of services rendered gifts of tangible goods, their stocks, bonds, cryptocurrency. Are you, as an organization, willing to accept all of these different types of contributions? We have a great example from one of our clients. They had a donor who had given to them cash contributions for years.

He calls up the organization one day and says, Hey, I want to give you guys a boat for your property. And they said, Great, thanks so much. Ship, ship it all up there. We'll take care of it. Turns out the boat was really only worth about $3,000, but it needed about $15,000 of work to get it actually up running and functional.

So now they're stuck with a broken down boat that they have. And, you know, they've got to figure out what to do with and they have to have an awkward conversation with a recurring donor when he asks why the boat isn't being used at the camp. So most gift acceptance policies will have some verbiage in there about verifying the different values of contributions, specifically motor vehicles prior to acceptance.

How about an organization had a similar policy in place? They wouldn't be stuck with a boat right now.

And so many things to to think about. You think things are pretty straightforward. And then and then there's I bet you guys have seen a lot there. So this this has been a great conversation. And we've just learned a lot of how to how that active preparation can save you a lot of trouble as well as, you know, preparing for audits.

And I you mentioned that webinar that we have coming up in October. And so I'm going to put that in the show notes of a sign up for attending that. As you mentioned, we are going to just dove in to a lot of detail on chart of accounts. And there, as you mentioned, there is that balance of how much detail do you need and don't go too far.

And so that pro active learning and planning on that's going to be real helpful. And it ties to what we talked about today and being proactive with that. So we appreciate so much all of the the advice that you've given. And one of the things as I'm listening to us is like I'm so glad this is a podcast where you can pause and write things down and rewind and listen to what you mentioned.

Again, there's been some great advice. So we thank you for helping our nonprofit community here be successful with their nonprofit accounting. And we appreciate you taking time out of your busy schedule to join us. And and is there anything else you would like to leave people with? Today in terms of advice about this active preparation?

Yeah, I just remind people that you get out of your financials, what you put in it is it is not a set it and forget it kind of situation, really, no matter who you're working with. If you want your audit to run smoothly, you need to prepare for your audit year round. It's not just the months leading up to your audit where you need to focus on that.

We've had numerous clients tell us that they spend more time on their finances since hiring Jitasa than they did prior to Jitasa. And they're really happy about that because they know how the organization is performing and is in significantly more detail than they did previously. And this allows them to make better organizational decisions to ensure their mission is accomplished.

And that's really what we're all focusing on, is accomplishing the mission of our organization. That's that's why we're in the business that we're in. That's why nonprofits exist for what they're doing. They want to accomplish that mission. And our role is to support them in doing that.

So that was our conversation. If you enjoyed today's nonprofit Coffee Talk, please subscribe and share it with others who might enjoy it as well. We look forward to connecting with you in our future webinars, podcasts and community discussion platform Compass.