Effective Grant Management and Proper Accounting Procedures for Nonprofits

The nonprofit’s accounting staff must be knowledgeable, capable and trained to code grant-related expenditures. Their accounting system software should be supplemented for proper grant management recording and reporting to enable the tracking what is grant accounting of revenue and expenses according to the grant budget. The accounting system also should be able to generate budget-to-actual variance reports to monitor differences in budgeted amounts for revenue and expenses and the organization.

An Intro to Nonprofit Fund Accounting: Lesson 2

Its relevance lies in its ability to provide real-time insights into how funds are being spent and whether expenses align with the budget. This enables prompt identification and correction of any overspending, thus ensuring proper use of funds. Now it’s time to dive into the key components of a robust grant accounting system. Accounting for funds in this fashion allows you to answer these questions and more. In a properly set-up system, this fund would have its own asset, liability, equity, income, and expense balances, making it a completely separate entity within your organization. You would still be able to see simple information for your organization as a whole.

Consolidate Funds for Programs and Activities

You may have checked up on the company to be sure they treat their employees well and have a positive community impact, but this just means you wanted to support a good company. If you hear that the $50 is going to help pay the salary of an employee, you’ll probably be happy that it’s not going into the pocket of the CEO. Those who repeat the mantra “accounting is black-and-white” are wrong because not all accounting is the same.

Free eBook: The Essential Reports Your Nonprofit Needs

Another is that grants can have a significant impact on financial statements, so accountants need to be aware of this. Accurate financial tracking is crucial in grant-funded projects for many reasons. Primarily, it provides transparency to grantors, demonstrating that their awarded funds are being utilized as intended. If you’re currently using QuickBooks® or another for-profit accounting software, we invite you to try Aplos for free and see the difference. (You can select our Nonprofit Accounting or Church Accounting version.) Aplos was created specifically for nonprofits and churches, and you’ll find tools and reports inside that other accounting software doesn’t offer.

• Amateur sports leagues are also nonprofits, as are animal welfare organizations.
• From board members and other stakeholders to tax regulators, internal and external entities of all kinds will have a vested interest in your nonprofit’s financial operations.
• It’s also beneficial if the software provider offers training and support to ensure you can maximize the system’s potential.
• For instance, trend analysis can reveal patterns in expenditure, thereby aiding in more accurate budget forecasting.
• Grants from foundations restrict use funds for a particular program or purpose.
• To begin setting up your financial tracking system, it’s essential to identify and categorize all grant-related expenses.

Why do nonprofits need fund accounting?

Look behind the scenes to understand what the executive director of a nonprofit does daily and how you can make a lasting difference as the chief changemaker of your organization. By monitoring donation volumes, you can effectively manage contributions and allocate them towards the right resources. Plus, when you know where donations are coming from, you can work on fostering relationships with the right people.

Anna brings more than a decade of experience in community engagement, campaign planning, and strategic communications at small, progressive nonprofit organizations in New York City. The accuracy of your strategic decisions and financial health analysis depends on financial reports. Poor record-keeping and auditing practices can mean that errors in your accounting statements skew analysis or that non-compliant practices go undetected. The Financial Accounting Standards Board (FASB) dictates how nonprofits should identify, classify, and recognize revenue in the GAAP. Unlike for-profit companies, nonprofits have various sources of revenue—contributions, grants, membership dues, international donations, etc—all of which must be recognized differently. You may also need reliable HR reporting software for effective compensation management and real-time insight into your employee expenses.

• However, if you’re planning to track multiple grants in the near future, you’ll likely need to invest in grant management software or use the grant management capabilities of your accounting system.
• At Rooled, we’re here to help you navigate the intricacies of conditional grants and make informed decisions that drive your nonprofit’s success.
• Conditional grants can be powerful tools for nonprofit organizations when used strategically.
• Proper grant accounting is more than just about complying with funder requirements.
• Supporting the Grant Management Process The grant management team should meet periodically to review the progress of all grants and maintain accountability.
• Suppose you manage a nonprofit that helps stray animals, and your operations are pretty straightforward at the moment.

Best Practices when Accounting for Grants

Steps to Set Up Your Grant Grant Accounting Systems

• Capital grant revenue can be recorded as deferred revenue on the Statement of Financial position and revenue can be recognized as the capital assets are depreciated.
• You would still be able to see simple information for your organization as a whole.
• By taking the time to research and prepare a strong proposal, you can increase your chances of securing the funding your nonprofit requires.
• Auditing is the process of inspecting and reviewing your financial statements to guarantee the accuracy and completeness of your financial records.
• This component is crucial in justifying costs related to personnel and validating that the grant funds were used for intended purposes.