Requests for transparency and accountability keep growing with the demands that contributions be used as intended. You need to track and report on segregated accounts, treating funds as separate entities with their own general ledgers.
More than 20 years ago, the Financial Accounting Standards Board issued two standards that established reporting requirements for NPOs: FAS 116, Accounting for Contributions Received and Contributions Made, and FAS 117, Financial Statements of Not-for-Profit Organizations.
Classifying revenue by restriction means recording and reporting time restrictions that funders and donors have placed on contributions. You can use a statement of financial position showing net assets by class of restriction, meeting FAS 117 requirements. A statement of activities provides the amount released from restriction.
A functional expense report is unique to Nonprofits because contributions come in many forms — donations, grants, dues, events, services, pledges, planned giving and bequests — that need to be tracked and reported across multiple programs, projects and reporting periods.
A chart of accounts lets you see financial activity, budgets, grant reimbursements, endowment allocation details, supporting documents and change history.
Using the right software, you can accomplish the following:
- Track grants and endowments — report activity for various projects, special events, endowments, exhibitions, scholarships and investments.
- Track transactions and budgets — track budgets at many different levels to create reports to satisfy board members, auditors, grantors and donors.
- Manage grant and endowment restrictions — demonstrate that you’ve used donations according to the grantors’ specifications. Report by grant in detail, evaluating its performance by grant-relevant dates. Staff members can share grant information internally, ensuring that funds are used only on approved expenditures.
- Manage grant budgets and spending limits — supervise grant deadlines, complete grant administrative tasks and automate indirect cost reimbursement calculations.
- Process grants — record additional levels of tracking and processing as required, including expense reimbursement and indirect cost allocations.
- Calculate expenditures — calculate the amount expended on reimbursable grants by grant or contract and create a corresponding report in each funder’s format, facilitating the submission of reimbursement requests.
- Account for more than one grant — keep your organization running even when costs not easily linked to a particular grant or contract. Most grantors, including the federal government, allow nonprofits to bill a percentage of the direct expenses related to the grant to recover the indirect costs. In many grants, this is referred to as a Negotiated Indirect Cost Rate Agreement and is part of the grant contract. Nonprofit accounting systems automate the process of calculating the total direct costs and associated indirect allowances.
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