Financial Management in Nonprofit Organizations

1904 words 8 pages
Running head: Financial Management in Nonprofit Organizations

Financial Management in Nonprofit Organizations Executive Summary
Successful management of a not-for-profit organization requires providing high-quality service, but at the same time, careful administration - to reduce expenses and automate processes are ongoing requirements. Each type of not-for-profit organization has unique management needs. For example:

• Social service and government agencies require meticulous reporting practices, essential for meeting regulatory compliance and securing future funding.

• Professional and trade associations are tasked with managing business events as well as maintaining education and certification records.
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Nonprofit boards are a somewhat different in that they are commonly comprised of members of the community or members of the organization who ultimately are representative of the organization. Similar to corporations, the functioning of governance in nonprofit organization lies within the members of the board who are responsible for providing the overall strategic direction, guidance and controls. Effectiveness of governance depends to a great extent on the working relationship between board and top management. The chart below (1.1) provides a pictorial view of a traditional hierarchy within a nonprofit organization.
Chart 1.1

Financial Management in Nonprofit Organizations
Nonprofit Organizations are unique types of businesses that are organized under specific rules that forbid the distribution of profits to owners or shareholders. The term “profit” in this framework is relatively an accounting term similar but not related to an excess revenues or expenditures. According to the Internal Revenue, under the Articles of association, in order to receive tax-exempt status you must be a corporation, community chest, fund, or foundation. Most nonprofits apply to this rule under probably the most known IRS classification 501(c)(3) “charitable nonprofit classification”. Tax-exempt nonprofit organizations can, and do, operate in all other particulars like any other sort of business. They have bank accounts; own productive assets of


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