One of the essential business requirements for all successful organizations is the need to deposit money for safekeeping. The challenge to do this effectively is shared by for-profit and non-profit entities. Nonprofit banking is specifically regulated by the federal government. The basic guidelines and rules for nonprofit banking are summarized below.
Opening a Nonprofit Bank Account: In order for a nonprofit organization to open a nonprofit bank account, the organization must obtain a Tax Identification Number, or TIN. This can be done through the IRS website. Ordinarily, the TIN online application is approved in a short amount of time — often within one business day. The TIN must be included on the bank account application.
Record Keeping: The financial records of the nonprofit entity must be kept completely separate from the records of the individual officers, owners or managers of the nonprofit. Federal accounting standards govern the types of account statements required to be maintained by the nonprofit. All donations and expenses must be recorded and contributions must be divided into restricted, non-restricted and temporarily restricted funds. Accurate record-keeping is essential to satisfy the requirements of nonprofit banking as well as other government regulations.
Historical Records: It is advised to keep five years of nonprofit financial records on file. In the event the nonprofit organization is audited by the IRS, the historical financial records must be available for review. These audits are to ensure that the nonprofit organization is operating in compliance with the regulations to maintain its tax exempt status. These records may be kept by the bank but should also be kept on file with the nonprofit.
Current Bylaws: Nonprofit banking requires the nonprofit entity to provide the bank with a copy of its current bylaws. These bylaws clearly outline the purpose, goals and policies of the nonprofit, listing the president, vice president and treasurer. Management team changes require updates to the bylaws and communication of those changes to the bank.
Authorized Signers: The bank keeps account signer signatures on file and the nonprofit provides a written summary of their check cashing procedures. These signatures must also be kept up to date.
Adherence to these guidelines and rules is necessary for nonprofits to successfully maintain a nonprofit banking account. Some financial institutions offer banking services geared toward nonprofit organizations. Those banks that understand the regulations and requirements imposed upon nonprofit businesses can enhance the banking experience for those organizations.