4 Steps Before Paying an Invoice to Ensure Expenses are Legit

When a volunteer or employee is new to a non-profit, or new to the world of non-profit bookkeeping, the learning curve can be steep, and everything can feel unfamiliar. In our personal lives, its easy to know if we need to pay the plumber, because we are very likely the one who arranged for the work to be done and were at home the day of the appointment. For a non-profit, the bookkeeper (also known as the treasurer, executive director, secretary, clerk, or Joe’s wife who is helping out) is rarely the one with the direct connection to the purchase.

How can the volunteer bookkeeper be expected to know all the details about all the transactions? Is there a process to help make this job a little easier? Good news, there is!

Here are 4 steps to ensure an invoice is properly processed before it is paid.

Step 1 – Is it an invoice?

Be sure the document received is in fact an invoice. Some vendors like to issue statements of account. Sometimes an invoice is already paid, or is in the queue for payment, when a statement arrives. If enough time has passed, or there are a lot of transactions happening, or if the person handling the volunteer bookkeeping is busy with their own paid job, they may not remember the invoice is paid and begin to process the statement like an invoice. While a statement of account is a great tool to see what charges have been made over a period, it isn’t an invoice. Each charge on the statement should have its own corresponding invoice. Statements can be filed for reference, but only invoices trigger the payment process.

Step 2 – Verify the purchase is real.

The person handling the payments should never assume any purchase is real without some sort of verification step. This will be different for all non-profits, particularly different in larger and smaller organizations. Verifying a purchase might be as simple as an internal cover page submitted by an employee, requesting the payment, detailing the reason for the payment, the program to which it should be attributed, and a signature (see last week’s post on cover pages). Verifying might be more complicated than a simple cover page, and the person paying the bills might want to actually see that the item exists, and verify the vendor is real, before issuing the payment.

Question: How can you issue a payment AFTER you buy something? It is common for non-profits to have charge accounts for certain types of purchases. It might be office supplies or maintenance equipment. The ‘purchase’ is made, and the amount is charged to the account of the non-profit. The invoice is mailed out later. This is extremely common in smaller non-profits, where there is a long relationship with vendors, who come to know and trust the non-profit administration.

Step 3 – Verify the date and amount.

Is the amount on the cover page the same as the amount on the invoice, and is it also the amount the organization thought it was going to pay? It is common for an item to be purchased on sale, but for the invoice to arrive with the full price. It is equally common for the date on the invoice to be nothing at all close to the date the purchase was made. Mistakes happen. Verifying can be as simple as checking that the numbers match, but it also might need a little more attention. If an employee bought something that should be reduced by a certain percentage, that information needs to be captured on the cover page, so the volunteer bookkeeper doesn’t have to guess or hunt down details.

In larger organizations, where purchases are made at field locations, and a head office handles all payments, it is common for someone to visit once or twice a year, to confirm larger purchases are authentic. For example, did the waterfront museum request permission to purchase a boat motor, but it’s no where to be found. There does seem to be other new equipment that wasn’t approved. How did that happen? 

Step 4 – Use two signatures on payments.

To prevent fraud, a non-profit will usually require each payment to be made with two signatures. The bookkeeper processes the payment, but it isn’t completed until two authorized signers for the non-profit review the transaction documentation, and each person signs their approval. Think about it, that’s 4 people who review each transaction. First the purchaser, then the bookkeeper, then the first signer, then the second signer. Having that many eyes on each transaction is a great way to reduce the risk of error and fraud. 

This process applies predominantly to payments made by cheque but may also apply to other payment methods. As strong finance policy is key here.

The purpose of 4-step invoice processing prior to payment, is to protect against unauthorized purchases and fraudulent activity.

Unauthorized transactions, even if they are legitimate, can seriously impact a non-profit’s budget. Volunteers and employees cannot simply buy things for the organization at will. The budget needs to be followed so the non-profit can afford to meet all the programs and service planned for the year. A well-designed purchasing and payment system will ensure the budget is followed and there are no financial surprises.

Fraudulent activity will always negatively impact a non-profit’s reputation and sometimes even its ability to continue operations. While there is no perfect way to protect against fraud, it is always reassuring when a non-profit can say they are doing everything in their power to protect the financial integrity of the organizing.

To ensure payments are made for genuine, pre-approved, non-profit purchases, the 4-step process should be used on every transaction. After time, these 4-steps will become second nature, and the volunteer bookkeeper will do them all without even a second thought. Updating the finance policy to reflect the 4-steps will ensure all future bookkeepers follow the same process.

When a non-profit wants to do its very best to ensure payments are made for genuine pre-approved expenses, the 4-step pre-payment process can be the foundation of a strong policy. Thanks for taking the time to read my ideas. My mission is to take the mystery out of running a small non-profit. If you know someone who needs to read this, why not grab the link, and share it with them. Let’s work together to make non-profit payments accurate, transparent, and honest.

-Christie

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Hi, I'm Christie Saas, former board member, current Executive Director, and non-profit volunteer. I remember well, those early years when I lacked the training, the confidence, and the work-life balance to focus on becoming the best non-profit leader I could be.

Fast-forward past many bumps in the road, lessons learned, and you’ll find me still in the trenches, but a little wiser, a little calmer, and a whole lot happier. I love my work and I want to help you love yours too.

I created ChristieSaas.com to give you tools, tips, and templates to remove the mystery of learning to run a small non-profit. If you’re a brand-new non-profit leader, or a little more seasoned, someone who’s looking to make a meaningful contribution and still have time for a full life away from the job, you’re in the right place.

© Christie Saas 2022 All Rights Reserved

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