Hughey's Debits & Credits: Bookkeeping. Payroll. Taxes.

Have You Robbed Peter to Pay Paul? You Could Be Misappropriating Funds

Your mission is to serve the community. Without money, you cannot achieve this goal.  You work hard to be awarded grants for your organization, and your mission is going great!

Fast forward in time to where the State is late reimbursing you on the funds you spent for the grants last month. Due dates for your organization’s bills are getting close and still no reimbursement. As an Executive Director or Board Member, you want to achieve your organization’s mission so you move some money around to ensure that the bills are paid and everything continues to flow as smoothly as possible.

Is it possible that you are misappropriating funds by serving the community and paying the bills by their due dates?

Let’s use this scenario:

Part of your organization’s events include a Thanksgiving meal giveaway for families in need.  It is the week of Thanksgiving and there is not enough money in the general fund account to purchase all of the food for the meal donations. However, there is money in your second account with grant funds designated to purchase new computers for the computer lab. So you just use this money to purchase the food necessary to fill the need. No big deal right? WRONG…BIG DEAL!!!!!!

Even though you were upholding the agency’s mission, you have committed a crime called misappropriating funds. Those funds were “restricted” and essentially untouchable for any other reason except for purchasing computers.

Here are 5 tips to avoid robbing Peter to pay Paul in nonprofit accounting:

  1. Always have a source of unrestricted funds such as “fee for services.” Examples include daycare, laundromat, fingerprinting services, etc.
  2. Request a line of credit from your bank.
  3. Fundraisers!!! Allow supporters and volunteers to assist you with your mission. Give plenty of guidance, advance notice and planning framework.
  4. Have a savings account or certificate of deposit (CD).
  5. Request donations from board members and launch an event specific donor campaign.

The best way to ensure that you aren’t misappropriating funds is to ask if the funds were designated for a SPECIFIC purpose. If so, then only use funds for that reason only.  This may sound easy to follow, but sadly we have seen this happen to organizations who are doing their best to serve others.   It’s heartbreaking to see an organization’s 501c3 status become revoked when a nonprofit has made mistakes in accounting.  It’s so easily preventable.

If you feel as though you need help with ensuring you have not misappropriated funds, please contact us for a review of your organization’s fiscal activities.  We’re here to help.  We are committed to ensuring YOUR organization’s credibility and accounting maintain an impeccable record so you can continue to serve your community for many years to come!

-Cortez & Ronda Hughey


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