For many nonprofit organizations, the end of the month brings a familiar sense of dread. The finance team, often consisting of just one or two people, scrambles to chase down missing receipts, reconcile bank accounts, and finalize the numbers before the upcoming board meeting. When the month end close process is chaotic, it leads to delayed financial reporting, frustrated board members, and an increased risk of accounting errors.
A smooth, efficient month-end close is the backbone of strong financial governance. It ensures that your executive director and board of directors are making strategic decisions based on accurate, real-time data, rather than numbers that are weeks or months out of date.
To help you streamline your operations and build a more robust financial foundation, we have developed the ultimate month-end close checklist. By following these steps, you can transform a stressful scramble into a predictable, highly efficient routine.
Why the Month-End Close Matters for Nonprofits
In the for-profit sector, the month-end close is primarily about calculating profit. In the nonprofit sector, the stakes are arguably higher. Your month-end close is about demonstrating accountability to your funders, maintaining compliance with the Canada Revenue Agency (CRA), and ensuring you have the cash flow to sustain your mission.
A rigorous close process prevents minor bookkeeping errors from compounding into major audit issues at year-end. It also provides the essential data needed for accurate financial reporting, allowing you to present a clear, reliable Statement of Operations and Statement of Financial Position to your board. If your organization struggles to prepare these documents.
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The Pre-Close Phase: Setting the Stage
The secret to a fast close actually begins before the month officially ends. The goal of the pre-close phase is to gather all necessary documentation so that when the new month begins, you are ready to reconcile.
1. Close Accounts Payable (AP)
Ensure all vendor invoices received during the month have been entered into your accounting system. If you are using an automated tool like Dext, verify that all scanned receipts have been published to your ledger. Review any outstanding bills and schedule payments for the upcoming cycle.
2. Finalize Accounts Receivable (AR)
Ensure all pledges, grants, and donations received during the month have been recorded. Verify that the revenue entered into your accounting software (like Xero or QuickBooks) perfectly matches the data in your donor management system or CRM.
3. Chase Missing Receipts and Expense Reports
This is often the most time-consuming step. Send a firm reminder to all staff members to submit their corporate credit card receipts and out-of-pocket expense reports. Implementing a strict cut-off date (e.g., the 3rd of the following month) is crucial for keeping the close process on track.
The Reconciliation Phase: Balancing the Books
Once the raw data is entered, the reconciliation phase begins. This is where you verify that the numbers in your accounting system match external realities.
4. Reconcile All Bank and Credit Card Accounts
Compare your internal ledger against your official bank statements. Every single transaction must be accounted for. If there is a discrepancy, it must be investigated and resolved immediately. Unreconciled accounts are a major red flag for auditors.
5. Reconcile Petty Cash
If your organization still utilizes a physical petty cash box, count the remaining cash and tally the receipts to ensure they equal the established float amount. Record the expenses to the appropriate program accounts.
6. Review Payroll and Benefits
Verify that the payroll expenses recorded in your ledger match the reports generated by your payroll provider. Ensure that all statutory deductions (CPP, EI, income tax) and benefit premiums have been accurately calculated and remitted to the CRA and relevant providers.
The Adjustment Phase: Allocations and Accruals
This phase elevates your books from simple cash accounting to accurate accrual accounting, which is required under the Canadian Accounting Standards for Not-for-Profit Organizations (ASNPO).
7. Record Accruals and Prepaids
Record expenses that were incurred during the month but have not yet been billed (accruals). Conversely, amortize expenses paid in advance (such as an annual insurance premium) so that only the expired period’s expense is recognized in the current period.
8. Allocate Overhead and Functional Expenses
Nonprofits must accurately allocate overhead costs (such as rent, utilities, and administrative salaries) across their programs when presenting expenses by program. Apply your organization's approved allocation methodology to ensure that each program reflects its true operating cost.
9. Update Restricted Fund Balances
This is a critical step unique to nonprofits. Review all expenses incurred during the month and ensure they are properly tagged to the appropriate restricted grants or funds. Update your schedules to reflect the release of restricted revenue as those specific expenses were incurred.
The Reporting Phase: Final Review
The final phase involves reviewing the data for accuracy and generating the reports for leadership.
10. Conduct a Variance Analysis
Generate a draft Statement of Operations and compare the actual results to your approved monthly budget. Investigate any significant variances. If a specific program is vastly over budget, you need to understand why so you can explain it to the board.
11. Lock the Period
Once the financial statements have been reviewed and approved by the finance director or Controller, "lock" the period in your accounting software. This prevents anyone from accidentally altering data in a closed month, ensuring the integrity of your historical reporting.
12. Distribute the Financial Package
Compile the final Statement of Financial Position, Statement of Operations, Statement of Cash Flows, and your written executive summary. Distribute this package to the executive director, the finance committee, and the board of directors.
Elevating Your Close with a Fractional Controller
Executing this 12-step checklist flawlessly every single month requires significant financial expertise and discipline. For many small to mid-sized nonprofits, the internal team simply does not have the capacity or the specialized knowledge to manage complex accruals, restricted fund allocations, and variance analysis.
This is where Enkel’s Fractional Controller services provide immense value. When you partner with us, you aren't just getting a bookkeeper; you are getting a dedicated financial leader who takes complete ownership of your nonprofit's month-end close.
Our Controllers implement robust internal controls, manage the entire reconciliation and adjustment process, and deliver polished, accurate financial packages directly to your board. We leverage industry-leading technology to automate the manual data entry, allowing our experts to focus on the high-level financial oversight your organization needs to thrive.
Struggling to close your books on time? Stop stressing over month-end reporting and start making strategic decisions. Book a Free Consultation with Enkel today to learn how our Fractional Controllership services can streamline your financial operations and deliver board-ready financials every single month.
Frequently Asked Questions (Q&A)
How long should a nonprofit's month-end close take?
Best practice in the nonprofit sector is to complete the month-end close within 10 to 15 business days following the end of the month. Anything longer than this means your board is making decisions based on stale data.
What is the difference between a bookkeeper and a Controller during the month-end close?
A bookkeeper is primarily responsible for the transactional data entry—recording invoices, categorizing expenses, and doing bank reconciliations. A Controller provides high-level oversight. They manage complex accruals, ensure compliance with ASNPO, perform variance analysis, and translate the raw data into strategic financial reports for the board.
Why is locking the period in accounting software important?
Locking the period ensures data integrity. If a prior month is left open, a staff member could accidentally backdate an invoice or alter a reconciled transaction. This would change your historical financial statements and cause your beginning balances for the current month to be incorrect, creating massive headaches during your annual audit.
