An important step towards financial growth and the promotion of transparency and accountability within a nonprofit organization is strong financial management. Nonprofit organisations are expected to keep a tight record of their financial and accounting operations as this improves their documentation processes and helps to take stock of their spending.
Under the Companies and Allied Matters Act, CAMA, nonprofits have an obligation to the Corporate Affairs Commission, CAC, to correctly keep records that explain how the organization spends and receives its money or other assets (day to day transactions). When nonprofits show records of how it runs; it helps the organisation demonstrate to regulators that it is actively operating and working towards its objectives and remains eligible as a registered nonprofit. This practice also helps to show whether or not the organisation is in good financial health and is being run efficiently.
Nonprofits are to ensure that they keep operational records which will ideally be stated in the statement of accounts prepared by the bank; doing this shows that the organisation is operating as a nonprofit and meeting its obligations under the part F of CAMA and with relevant authorities, stakeholders and donors. Though this process might be delegated, it is the responsibility of the Board to ensure that the organisation’s accounting records are kept and prepared according to relevant accounting principles adopted by the organisation.
The law requires that nonprofits have preserved accounting financial records for a period of six years from the date of the organisation’s inception for effective transparency and accountability processes.
To adhere to this requirement, nonprofits are required to ensure that financial reports, receipts of transactions and all evidences of payments are correctly recorded, allow for true and fair statements prepared and audited by an audit firm for large organisations while smaller nonprofits can prepare a statement of affairs (a profit and loss account). This document is vital to the process of filing annual returns with the CAC.
This newsletter is supported by the Commonwealth Foundation. However, the ideas and opinions presented in this document do not necessarily represent those of Commonwealth Foundation, NNNGO or any other organisations mentioned.