Are you running a charity or non-profit organization? If so, do you have the proper charity financial management policies in place to handle expenses? Expense management is important to not only to receive grants and funding, but also to ensure your resources are properly allocated to meet your objectives.
However, non-profit expense tracking isn’t always simple and straightforward. From limited budgets and high donor expectations to complex reporting requirements, charity financial treasurers and leaders have their hands full navigating this sector of financial reporting.
In this article, we’ll explore the top tips, tools, and best practices for expense management in charities, helping you properly manage your charity funds and reach your strategic goals.
With the right processes and procedures in place, you can manage your finances efficiently, infuse transparency into your financial reporting, and maximize the impact of your funding.
Why Expense Management is Critical for Charities
Expense management in charities is critical to unlock long-term success. For one, it builds trust with donors and stakeholders through financial transparency. Transparent financial reporting for charities outlines the flow of funds, highlighting how you are allocating resources. This is especially important for conditional donations. After all, donors want to be sure their funding is put to good use.
Additionally, expense management helps align your spending with your budget. If you have no clue how funds are being spent, you are probably overspending. Non-profit expense tracking uncovers inefficiencies in your spending, allowing you to reallocate resources to other areas. For example, if you are kicking off a new program, you could probably use the funding there rather than spending it on an unused subscription.
Moreover, non-profits are subject to stringent regulations to maintain favorable tax status. According to the Internal Revenue Service,
“An exempt organization must keep books and records needed to show that it complies with the tax rules.”
Failure to do so could result in fines and penalties, or even worse, the removal of your tax-exempt status.
Common Challenges in Managing Charity Expenses
If you’re wondering how to manage charity funds, odds are you are facing some challenges in your expense management function. One of the top challenges is a lack of dedicated financial expertise. As a director, you might understand expense management like the back of your hand, but that doesn’t mean your employees have the same comprehension levels. This can result in reporting discrepancies and errors, which can be costly.
Additionally, another challenge found in non-profit expense tracking is manual or outdated bookkeeping processes. Technology has come a long way in recent years. If you aren’t leveraging expense report management software, you might be opening the door to mistakes, inefficient processes, and tedious work.
Non-profit financial tools also create aligned budgets, giving you transparency in where you might be overspending. However, few organizations take advantage of these tools, resulting in misaligned budgets, unhappy donors, and lower funding.
Practical Steps to Improve Expense Management
The good news is that you can improve your expense management. Here are some best practices for charity treasurers that can turn your struggling expense management function into a thriving and efficient system.
#1- Develop a Budget
If your charity isn’t currently using a budget, this will be your first stop. A budget outlines your expected funding and how you will allocate those resources to different programs and projects. For example, you might decide to spend 20% of a grant on supplies and another 25% on wages. A budget puts these thoughts on paper, giving you and your team something tangible to follow to ensure spending alignment.
Another charity budgeting tip is to always have a miscellaneous or catch-all account. This is an account with a set dollar amount for unexpected or unforeseen events. You can’t predict everything, which is why it’s important to have an account that gives you flexibility in operational spending.
#2- Adopt Digital Tools
Non-profit digital tools not only increase efficiency and accuracy, but they also address many of the challenges in non-profit financial reporting. Expense management software programs, like QuickBooks Nonprofit and Zoho, understand the intricacy of non-profit reporting. They have customizable financial statements that conform with guiding legislation while still providing your company with robust features, like budget tracking.
However, having an overall accounting program is only half the equation. Supplementing these programs with expense claims software, like N2F, offers ultimate flexibility. Expense management programs seamlessly integrate with your accounting software while providing you with niche data on where your funds are going and adding an extra layer of fraud detection and prevention.
#3- Track Expenses Regularly
Another practical step to improve your non-profit expense management function is to track expenses regularly. It’s much easier to remember what a transaction was for last week compared to six months ago. By regularly reviewing your financial records, you can identify fraud and asset misappropriation quicker, adjust your budget to maximize fund use, and issue regular reports to donors and stakeholders.
#4- Set Clear Policies
Adding the right software programs is a great start, but you shouldn’t stop there. Developing a robust and efficient expense management function relies on setting clear policies for everyone to follow. For one, you should define spending limits and the expense approval process. Staff and volunteers need to understand budgetary restraints and how to get approval for transactions.
Additionally, your team members should understand which types of expenses are reimbursable and the process for submitting a request. Aligning your team members helps you reach your financial goals and operate with ultimate efficiency.
#5- Train the Team
Non-profit expense tracking is a foreign concept for many staff and volunteers. After all, they might be great at running your charity initiatives but lack the financial education to run a charity. This is where team training comes into play, ensuring everyone understands how to use your expense management software, the importance of sticking to a budget, and the processes and procedures for spending money and receiving reimbursements.
#6- Perform Regular Audits
Regular audits are another crucial component of managing charity expenses. Every few months or on an annual basis, conduct an audit of your expenses. Are your policies and procedures still working effectively? Do you need to train new employees? Is it time to invest in a niche expense claims software program that connects to your accounting system? These are all questions to ask when reviewing your expense management function.
Tools and Resources for Charity Expense Management
Transparent financial reporting for charities is not a one-size-fits-all approach. In fact, it’s highly specialized depending on your industry, goals, and initiatives. Nevertheless, here are some tools and resources to look into:
Budget templates
Accounting software programs
Expense management programs
Internal audit checklists
Training and education program
Books on charity expense management
