The Strauss Blog

Six Bad Habits of Association Accounting and How to Avoid Them

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Are you worried some of your accounting methods are causing more problems than they prevent? Or perhaps you don’t know how some of your habits are affecting your association or your external auditors. We all know quick fixes aren’t the right answer but unfortunately these types of things happen a lot in accounting because you don’t know what else to do or things get busy. These are some of the most common areas that could result in problems later on.

1. Taking on More Than You Should

Sometimes accounting or bookkeeping specifically does not get the credit it deserves. Although the concepts can be fairly simple (to some), especially for a small association, bookkeeping requires experience and the proper amount of knowledge and training. Hiring a newbie might not be the best choice, especially if the job is to manage multiple association clients. It’s also important that the accountant understands the system for filing provincial sales taxes because if an error is made and not caught immediately the process for getting it sorted out can be quite complicated.

2. Using Unnecessary Accounts

Using miscellaneous accounts can create confusion and extra work. If you have a one-time income or expense item that is rather large, a better option would be to create a line item for it, so readers of the financial statements understand clearly what the item is. If the item is small, grouping it to office supplies, bank charges or interest income could be a better location. You can almost bet that a miscellaneous item will be asked about. Many of the readers of association financial statements are volunteers, so making the statements as easy to read as possible is helpful. Similarly, suspense accounts should not be used unless you are 100% sure the item is temporary and it will reverse or you will go back to re-code it when you have the information you need.

3. Avoiding the Filing Cabinet

Stay on top of filing and stay organized! This is especially important when dealing with multiple chapters as is often the case with national associations. Important deadlines could be missed or payments could be late if you let things get behind.

4. Unclear Deadlines

Make sure you know what is expected of you and when. Using a calendar to note deadlines is essential. Good communication is also essential to not missing a deadline. If you are not receiving the communication you need from the right people, reach out and ask. And then ask again if necessary.

 

5. Not Standardizing Monthly Procedures

Accounting software makes it very convenient to standardize monthly transactions. Make sure you do your research and learn how to make use of these features. It will likely save time and avoid the chance of errors being made.

6. Making the Audit Process More Complicated and Time Consuming than It Should Be

It’s common to not have much of an idea what the auditors actually do during the year end review or audit or why they are doing it. I would highly recommend that you ask them about anything that is not clear to you.

Some of the common areas of bookkeeping/accounting bad habits auditors come across are:

  • The journal entries provided by the auditor were not entered in the accounting software correctly. If you don’t understand the reason they recorded a journal entry the way they did, the best thing to do is ask them about it. They can provide the directions necessary to get it right and avoid extra time spent during the review or audit in the following year.
  • Retained earnings not agreeing to the prior years ending balance. This ties into entering the journal entries correctly. If the retained earnings do not balance the first place to check is the prior year’s ending journal entries. Trying to pinpoint this error takes a lot of time for the auditing staff.
  • Accruals/prepaid expenses set up incorrectly. Make sure you provide a summary of the entries that make up these accounts at year end when you are providing information to the auditors.

Of course, there are many more habits that can negatively affect your association’s accounting. Above all, the most important thing to remember is that you need to truly understand the work you are doing and the system or reason behind every transaction. This will also ensure you have the answers the board or other volunteers are looking for when questions are asked.

One thing is for sure, taking the necessary steps to approach your association’s accounting correctly the first time will save you time and frustration in the future.

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