By Linda J. Kramer, CPA, MBA
Accounting & Auditing Director
Non-profit organizations that rely on grants and contributions to support their mission should be aware that those grants and donations may come with restrictions. Restrictions require special attention to perform the fiduciary responsibility of properly using the funds for the specified restricted purpose.
The following are some suggestions for accounting and oversight to consider, whether you are new to restricted donations or just in need of a basic refresher.
Mission Fit & Documentation
When a restricted donation is proposed, the organization needs to determine if it fits their mission and the restrictions can be met. Once this is determined and the funds are accepted by the board or other proper authority, the organization will need to identify and document the restriction, whether it be purpose restricted, time restricted or for endowment purposes.
Grants obtained through proposals may also come with restrictions. Those restrictions will also need to be identified and documented. All the information for each restricted grant or donation should be shared with the board and proper members of the finance team. Communication is very important.
Proper Tracking Procedures
A tracking system for each restricted grant or donation should be established to track the income and related expenses. This can be accomplished by a well-structured spreadsheet or specialized software. We have many clients using QuickBooks P&L by class to track, but since it tracks by fiscal year and grants may cover more than one fiscal year, an Excel template is often utilized to roll forward the tracking into the next fiscal year.
Expense Approvals
The next step is to identify the acceptable expenses for each restricted grant or donation and determine who is allowed to approve those expenses being applied to that project. Invoices received should be approved for payment and coded to identify the grant. Proper approval for grant allocation should be documented, and the invoice should be posted in the accounting records for that specific grant.
Labor charges require more work as some employees may assist on multiple projects. Capturing labor to the proper grant can be accomplished through the use of time sheets completed daily or some other reasonable basis. The time charges should also be approved for that specific project; the authorized person and then payroll expenses should be posted in the accounting records for each restricted project.
The agreement of the accounting records for tracking restricted grants/donations received and related expenses should be reconciled to the activity in the general ledger on a routine basis to determine accuracy and ensure no expenses have been allocated to more than one grant source. This is also important to confirm that any financial reporting going back to the grantor or donor is accurate.
By putting proper controls in place and having the reports monitored by the board and finance team on a routine basis, nonprofits have a greater chance of success with properly using restricted funds, making your donors happy, and ultimately accomplishing your non-profit mission.
