Don’t Jeopardize Your Nonprofit Compliance with a Commercial Accounting System
Grant-funded nonprofits know compliance isn’t a nice-to-have. It’s a must-have. You might be able to win back an unhappy donor with a new program or event, but grant funders usually don’t get excited about silent auctions.
If all your Ts aren’t crossed and your Is aren’t dotted on your grant reporting, your chances of repeat funding from that entity are low. When your accounting system is not built to handle restricted funding, each report can feel like a fire drill. A stressful, manual, error-prone fire drill.
If your organization receives at least some of its funding from grants, you need a fund accounting system with subfund accounting capabilities built to handle nonprofit accounting standards. With an accounting system designed to manage and track balances by fund and subfund across fiscal years and with supported documentation, you can minimize risk by making nonprofit compliance a streamlined process.
The Importance of Compliance for Nonprofit Organizations
Nonprofits show integrity through transparency. You build relationships and trust with funders by meeting their requirements. You are likely to lose that funding source if you aren’t able to provide the transparency your funders are looking for or require.
If you are like most nonprofits, you piece together a variety of funding sources, including many that are restricted in nature, to meet your mission and operating needs. Each of those funding sources has their own take on requirements. Adhering to requirements and guidelines is how you establish trust with the granting agency so you can get additional funding. But compiling ten different reports for ten different grants—all with slightly different requirements—is a tall order even when you aren’t juggling dozens of spreadsheets and accounting reports.
It’s not just the end-of-grant reporting that can cause problems. For many grants, you must monitor your spending throughout the life of the grant. If you overspend in a grant-funded area, you have to find other funding to fill that gap. If you didn’t spend everything in one category, the agency will typically keep the money you didn’t use. And with reimbursable grants, if you don’t meet the requirements, you don’t get the reimbursements.
The Role of Efficiency in Nonprofit Compliance
Efficient and streamlined processes aren’t just important for your sanity—they are a key part of maintaining compliance. When your accounting system is not organized for your nonprofit needs, it requires more human intervention, which adds complexity to your processes.
With systems that require workarounds or augmenting with spreadsheets, you introduce risk and weaken your system. Pulling information out of your system to manipulate it in a spreadsheet can lead to mis-keyed data or sorting errors. You also risk not having the most up-to-date information for your reports. And the more workarounds you have, the longer it takes to pull information together through manual processes.
How Fund Accounting Systems Improve Nonprofit Compliance
Fund accounting software with subfund accounting capabilities provides functionality that makes reporting and transparency an integrated part of your workflows. Here are four ways that accounting software built for nonprofits helps you improve your compliance processes.
1. Track restricted funds by project to manage funder requirements
Restricted revenue is at the heart of nonprofit accounting. You need a system that can manage funding by program or project so you can easily pull relevant data specific to that funding source.
When evaluating an accounting system for your nonprofit, look for a segmented chart of accounts and record-based subfund tracking capabilities. You get more granular tracking for easier reporting without creating an unmanageably long chart of accounts.
You also want a system that can carry the equity of a grant from one fiscal year to the next. You easily stay aligned with donor restrictions without building a new project or record every fiscal year. With these restrictions already noted and documented on your subfund record, you don’t have to worry about manually entering them each year and can run better budgeting scenarios.
2. Manage documentation in the system
Grants come with a lot of paperwork. From the notice of award to the reporting schedule and requirements, there can be significant non-financial information that informs what you track and how you track it.
A fund accounting system with record-centric subfund accounting capabilities built for nonprofits gives you a place to attach the funding requirements directly in the grant record. This puts the details of the grant at your fingertips for easy access and helps with document control. It’s front-and-center throughout the life of the grant—and beyond. You don’t accidentally have old versions floating around your shared drives.
3. Innate internal controls to improve accountability
Clear, repeatable, and followed controls lead to strong compliance standards. Your organization already has processes that help you align to FASB nonprofit accounting standards, but your fund accounting system should make those processes easier to follow. For example, you can restrict valid or invalid coding combinations and create role-based permissions so only certain people can view information, approve expenses, or reconcile bank accounts. Your software can also help you make sure everyone follows these internal controls by automatically sending approvals to the correct people based on the type of expense and dollar amount.
Your fund accounting software should also provide view-only access for non-finance stakeholders, so your data stays secure while giving insight to those who need it. View-only access can help your staff save time as well, with auditors and leadership able to see dashboards and get information they need without asking you to run a report.
4. Grant management tools to improve efficiency
If your organization has significant grant funding, managing each grant with spreadsheets can make it hard to get a holistic picture of your funding—not to mention being incredibly stressful. A fund accounting system with subfund accounting capabilities built for nonprofits enables you to create spending rules that automatically calculate reimbursements. You can also assign grant-specific tasks within the system, so you meet deadlines without the last-minute fire drill.
Grants often carry different fiscal years than the one your organization uses. A fund accounting system can track balances as of any date to help you manage the timeframe of the funder without having to change your own fiscal year to match theirs.
With all your grant information in one system and innovative report writing tools like Chart Organizer, you simplify your reporting. You can meet the reporting needs of multiple grant funders without having to recreate reports from scratch or manually manipulating data outside of your accounting platform.
Avoid Compliance Fire Drills with Fund Accounting Software
Grants often require more accounting resources than other types of funding. But once you have a repeatable process that builds trust with the funding agency, you can begin to scale those opportunities and look for other grants or funding sources like government contracts that are a good fit for your mission. With the right fund accounting software, you also save time and reduce the stress on your accounting staff while maintaining high nonprofit accounting standards.
If you are ready for an accounting system built for your needs as a nonprofit organization, check out Blackbaud Financial Edge NXT. Join us for a product tour to see how you can save time and improve compliance for your organization.
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