Alleviate Nonprofit System Scrutiny with True Fund Accounting

By August 20, 2019Uncategorized

A recent article in the NonProfit Times states that nonprofit hospitals that figure out how to absorb Medicare payments may do better than others. Hospitals have been under the microscope in the past year as more information has been uncovered surrounding their billing practices. With a greater push towards transparency in pricing, hospitals face greater scrutiny around their billing practices.

Yet charitable hospitals face the same pressures that for-profit hospitals face. The Affordable Care Act, for instance, requires nonprofit hospitals to assess the needs of their communities once every three years and to offer financial assistance to patients who need help paying their bills. Given that costs continue to rise along with demand for service, that’s a tall order.

Senator Chuck Grassley (R – IA), chairman of the Senate Finance Committee, has asked the Internal Revenue Service to monitor whether nonprofit hospitals are indeed meeting their charitable obligations. He has also stated he intends to launch a probe into the situation to ensure that hospitals who qualify as nonprofits are indeed acting as such.

You may wonder how this affects your nonprofit organization. You may run an educational nonprofit, or an arts foundation, not a hospital. Why would anyone scrutinize your accounts and activities?

The time may be coming when all nonprofits face additional scrutiny. Greater access to information has alerted the public that nonprofits must fulfill their missions with the margin that they make. The public wants to know that their donations to charitable organizations goes towards their mission, not a mansion for the CEO or a Board member.

True fund accounting can help alleviate this level of scrutiny on your organization. Download our free white paper on the 10 Reasons Why Nonprofits Need True Fund Accounting Instead of a Commercial Accounting System here to better understand this topic.

What Is True Fund Accounting?

True fund accounting is software purpose-built for nonprofit organizations. Unlike typical “off the shelf” small business accounting software, true fund accounting software takes into account the unique blend of funding sources fueling most nonprofits.

While a for-profit company may also have multiple funding sources, they generally do not have the complexities of tracking funding back to its source at the level of detail required of most nonprofits. For example, a shoe retailer may account for revenue from its retail store chains and from its e-commerce site.

A nonprofit organization may have dozens of revenue sources, each with its own requirements. For example, an education nonprofit that is affiliated with a university may have several funding sources, each with different stipulations on how the funds may be spent. Grant funds from a large, private donor may be earmarked for particular programs while money from product sales may be spent on any and all operating costs.

This level of complexity is quite common among nonprofits and one reason why typical small business accounting packages and spreadsheets don’t work well for nonprofit accounting. True fund accounting takes into consideration the many variables at a nonprofit and the different ways that money may be tracked, spent, carried over, and more. The Chart of Accounts for a nonprofit may require multiple dimensions to fully understand it, and only true fund accounting accommodates this level of complexity. Typical accounting software cannot provide the appropriate level of detail most nonprofits need.

True Fund Accounting Helps Avoid the Spotlight

Senator Grassley mentioned scrutinizing hospital spending to ensure they aren’t dodging their mission as nonprofits – to provide healthcare to the vulnerable.

By using a true fund accounting program to track how the nonprofit hospital manages its payments and services, the hospital could publish its results and allow public scrutiny on its documentation. The Senator might find that the multi-dimensional approach to the chart of accounts provides the level of detail needed to allay fears that the hospital isn’t fulfilling its mission. It could document the facts it needs to placate the senators investigating its activities and assure the public that its charitable status remains intact.

No one likes the IRS knocking at their door. With increasing demand for transparency in hospital pricing and other nonprofit organizations, it’s time to pre-empt any arguments about financials by using true fund accounting. Find out more about true fund accounting systems from Welter Consulting.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.