What would happen if your nonprofit made a major decision based on the wrong numbers?
By the time an error surfaces at year-end, the damage is often already done. A consistent month-end close process gives you the chance to catch problems while you can still act on them.
The close is where you confirm your numbers are accurate before they reach the people making decisions. Done every month, the close process protects your organization against fraud, prepares you for year-end, and gives funders confidence in your stewardship. Done late or not at all, and you can end up managing based on guesswork.
Key Takeaways:
- Close every month, ideally by the 15th of the following month, so your financial data is current enough to act on.
- Keep the close well-documented. Good records make the annual audit easier, help you retain your auditors, and support your funding odds.
- Use the close to catch red flags early before they become year-end surprises, like catching a duplicate vendor payment.
- Lean on the close’s built-in controls, including reconciliation, segregation of duties, and approvals, as your first line of defense against fraud.
Why Every Nonprofit Needs a Month-End Close Process
Just as athletes review footage right after a game, you need timely financial reviews while the results still mean something.
Every priority, decision, and activity has a financial impact. Reviewing financial statements gives an objective view into where to put resources; waiting until year-end is often too late to change the outcome.
What a Trustworthy Close Looks Like
You don’t need to run the close yourself, but you should know what a reliable one looks like. A close you can trust does four things every month:
- Reconciles accounts to outside records. Account balances are matched against external sources, such as bank statements, so the numbers reflect reality rather than what was entered.
- Gives significant transactions a second look. Large or unusual transactions are reviewed for accuracy, proper classification, and duplicates, rather than taken at face value.
- Resolves discrepancies in the same period. Issues are investigated and cleared through corrections or added documentation, not carried forward to tangle up next month.
- Separates who prepares from who approves. Someone other than the person who did the work reviews and signs off before the numbers are final.
These practices, repeated every month, produce results you’ll see well beyond the finance office.
Four Benefits a Consistent Month-End Close Delivers
- Better decision-making and earlier warnings.
Accurate data leads to sound decisions. Wrong numbers lead to uninformed choices. A monthly close surfaces an off-budget program or a misclassified grant expense while you can still adjust, not after the fiscal year has closed around it. - A first line of defense against fraud.
Your internal controls are what catch financial misappropriation as it happens. An annual audit is an important independent safeguard, but it looks back once a year, while the reconciliations and approvals in your monthly close work month after month, much closer to when the activities occur. - A smoother annual audit.
Well-maintained monthly books make audit preparation less demanding, and organizations that stay audit-ready are more likely to complete audits on time. On-time audits are critical in helping to retain your existing auditors as audit firm availability tightens. A timely audit also means less disruption to your staff and operations. - Funder confidence and compliance.
Large donors and grantors expect timely, accurate financial statements as evidence of fiscal responsibility. In today’s funding climate, staying in compliance with funder reporting is critical to keeping current funders and finding new ones.
Questions to Ask Your Finance Team about Your Close
- How many days after month-end do our statements actually land on my desk?
- Do we follow a standardized close checklist so that no step is skipped from one month to the next?
- Does one specific person own each task, with a deadline?
- Do we lock the period once the close is done, so finalized records can’t be changed?
- Are our supporting documents, including bank statements, invoices, and reconciliations, stored somewhere organized and central?
- Do we meet briefly after each close to review results and flag concerns early?
If the answers come back fuzzy, your organization’s close might be a source of risk rather than the safeguard it should be. For a starting point, download and hand your team our month-end close checklist for nonprofits.
The Month-End Close Is a Strategic Tool
A consistent close is part of the strong financial controls that protect your organization and build its credibility. And month after month, a reliable close demonstrates exactly the kind of financial stewardship funders want to see.
If your organization is struggling with a slow, inconsistent, or unreliable close, the nonprofit finance experts at Chazin can help.
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Chazin
With over 20 years working exclusively with nonprofits, we pride ourselves in having a unique understanding of nonprofit accounting needs. We believe that nonprofits deserve personalized, quality service and should not settle for a one-size-fits-all approach. We collaborate with you to provide a fully virtual and customized solution that is not only cost-effective but also strengthens your accounting function. We offer a team of industry experts at your disposal to provide advice, leading technology, and to supplement existing staff to improve efficiency and compliance.