Category

Accounting

Oct 15
0

Strengthen Board Financial Oversight with These Tips

By | Accounting, Nonprofit | No Comments

Nonprofit boards serve several purposes. Among their responsibilities is financial oversight. This doesn’t mean that they are hands-on with the bookkeeping. Instead, it means reviewing and shepherding the organization so that it adheres to sound financial best practices that support achieving its mission. If you’re confused about what this means, or you’d like to steer your board towards productive conversations around finance, the following tips will help you strengthen your board’s financial oversight to your organization’s benefit.

What Does a Nonprofit Board Do in Terms of Financial Oversight?

Nonprofit board meeting with speaker and 4 attendees. Financial oversight meeting.

Nonprofits boards focus on specific tasks when it comes to financial oversight. They should be well-briefed on the organization’s financial position, review major financial investments and decisions, and approve or halt them if they feel they aren’t a good fit for the organization. They serve as trusted stewards and advisors who keep one experienced eye on the mission and the other on the margin it takes to achieve the mission.

What they are not is hands-on financial help. A board’s financial oversight duties do not extend to working directly on any accounts, systems, payroll, or finances. Review them, yes. Guide and advise, yes. But actually, performing bookkeeping functions, writing checks, or handling money is not within the scope of their duties.

Financial Oversight: The Board as Wise Advisors

Healthy nonprofits treat their boards like the wise advisors they are (or should be). They regularly share financial information with their boards, including but not limited to:

  • Budgets and budgets versus actual
  • Cash flow statements
  • Statement of financial position
  • Restricted fund information and updates
  • Overall financial dashboards, reports, and plans

Of course, this list is just a suggestion. Your organization may wish to share different information with your board, and that’s fine. As for how often to share it, the answer depends. If your organization is growing rapidly, you may wish to share information frequently. Mature organizations may have a quarterly, biannual, or annual cadence, whatever works best.

Tips for Getting the Most from Your Board’s Financial Oversight

The members of your board should have extensive experience they share to help your organization thrive. To get the most of their knowledge, talent, and experience, use these tips.

  1. Set expectations from the start: New board members should be briefed on their role. Learn about any special expertise they may have, too, that you can tap into. Set the expectations right from the get-go so everyone is clear on what financial oversight means at your organization and what you hope to achieve by partnering with your board on this important responsibility.
  2. Create a finance committee: Let’s face it: not everyone on your board has the experience or interest in finance you may hope for. A subcommittee dedicated to financial oversight may work better for some boards so that people on the committee can focus on finances while others focus on operations, talent management, mission, or other important activities.
  3. Offer training: It may also be helpful to offer training to your board on how to read financial statements. Your CFO, treasurer, or accounting team leader should work with the board to ensure they truly understand how to read and interpret key financial information.
  4. Make financial conversations about impact and strategy: Try to keep financial conversations with your board focused on the impact the organization has as well as its strategy for using money effectively to achieve its mission.
  5. Maintain good lines of communication: No matter whether you work with a portion of your board or the entire board on financial oversight, always maintain open communication with them.

Organizations can live or die by their financial state, and many a nonprofit that was doing great work closed its doors due to poor financial management. Conversely, with good financial oversight and advice, and a board that supports you, your organization will thrive.

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 us for more information.

Oct 13
0

Not Just Nice to Have, But Absolutely Essential: Grant Management Best Practices

By | Accounting, Accounting Software, MIP Fund Accounting, Nonprofit | No Comments

There are three things you absolutely must do (and do right!) if you manage grant funds. Nonprofits that rely upon grant funding should have best practices and good software in place to help manage grant funds and activities. Without these in place, you run the risk of compliance issues that range from an expensive mistake to losing your nonprofit status. Let’s take a look at the three things you must do to properly manage grant funds and talk about efficient ways to ensure compliance.

Grant Funds Differ from Donations

woman standing in front of table with several information boards behind it. Grant Management

Not all funds are created equal. Although both grant funds and donations may come to your nonprofit, these funds come with different stipulations, and as such, must be treated differently.

Grant funds differ from general donations in several important ways, and those differences shape how nonprofits must manage them. Grants are typically restricted, meaning the money must be spent exactly as the funder specifies: on certain activities, within certain time frames, and under specific rules.

Donations, on the other hand, are often unrestricted, allowing organizations to use them for whatever best supports the mission, from salaries and rent to emergencies or overhead. Because of this, restricted grant dollars require careful tracking, documentation, and reporting, while unrestricted donations offer flexibility.

Grants also come with formal agreements, including contracts, budgets, reporting obligations, compliance requirements, and sometimes audit rights. A typical donation rarely involves more than a thank‑you letter and a tax receipt. This means grants create legal and financial responsibilities, whereas donations primarily create stewardship responsibilities. Grants require detailed reporting—financial statements, outcome data, narrative updates, and proof that spending aligns with the approved budget. Donations simply require acknowledgment and relationship-building through updates or annual summaries.

Finally, grants often prohibit certain expenses, such as food, lobbying, capital purchases, or indirect costs above a set rate, while donations generally allow any mission-supporting use. In short, grant compliance is about staying within strict boundaries, while donations give nonprofits room to maneuver.

Three Grant Fund Management Best Practices

  1. Track every restricted dollar in true fund accounting
  2. Keep one compliance calendar for every funder deadline
  3. Connect grant spending to program outcomes before the report is due

Given these key differences between grants and donations, it comes as no surprise that managing grants comes with a specific set of guidelines, too. These include tracking every restricted dollar in true fund accounting, keeping a compliance calendar, and connecting grant spending to program outcomes. Please note that there are more best practices when it comes to grants – we’re just covering three of them. If you’d like to learn more, AlignMint offers a longer guide with other best practices to note.

1.   Tracking Restricted Dollars in True Fund Accounting

Because grants are restricted dollars, they must be used towards the specific program associated with the grant. You need to know, at all times, exactly how much you’ve spent and how much remains. To do this, you must use true fund accounting. True fund accounting tracks dollars against a specific fund rather than in general categories. Each grant is treated like a mini budget or “fund.”

Why this matters: If you can’t provide an accurate report to funders about how their money was spent, not only are you at risk of losing funding, you are also at grave risk of losing both the funder’s trust and the public’s trust. Grants are awarded based upon specific criteria, and the money must be put towards a stated purpose. True fund accounting enables both your organization and the grantor to see exactly how the funds were used and for what purpose, giving clarity and insight into how well they met their stated purpose.

2. Maintain a Fund Compliance Calendar

Grant compliance often involves multiple time-sensitive tasks. To ensure you maintain compliance, it is vital to keep a calendar of key dates for specific grants.

Every grant has deadlines: reports, site visits, audits, reimbursement requests, renewal dates, data submissions. Instead of tracking these in scattered emails, spreadsheets, or staff memory, you maintain a single shared calendar.

This calendar should include:

  • Due dates
  • Required documents
  • Who is responsible
  • Reminders well before deadlines

Why it matters: You worked hard to secure the grant. A simple slip up, like failing to submit the required documents on time to maintain it, may be all it takes to lose it. A calendar is the simplest way to track everything that matters to maintain grant compliance.

3. Connect Grant Spending to Program Outcomes

This one should be obvious, but you’d be surprised at how often it is overlooked: before spending one penny of a grant, ensure that you’ve mapped specific program outcomes to every dollar you intend to spend.

Nonprofits who skip this step often scramble at the last minute to connect the dots, and that’s a shame. There’s no need for a “funding fire drill” when preplanning and preparation can prepare you for success.

Grants are performance-based. Funders want to see that dollars produced results. By establishing goals before spending grant funds, you’ll be able to regularly compare what you’ve presented, the outcomes you’ve achieved, and what you’ve promised in the grant. And, doing this throughout the grant period (rather than at the last minute) helps you catch any gaps early. For example, spending may be on track, but outcomes are lagging. If you’re tracking it in real time, you’re able to see this gap early and take steps to close it. You can also adjust activities before reporting and produce better reports.

Why this matters: Funders care about impact. When you can clearly show how money turned into outcomes, you strengthen your credibility and future funding chances.

New to True Fund Accounting? Welter Consulting Can Help

To manage grants effectively, organizations need to know exactly how much of each award has been spent and how much remains at any given moment. Because grant dollars are typically restricted for specific purposes, true fund accounting is essential. This means treating each grant as its own mini‑budget rather than lumping all revenue together. Solutions like MIP Fund Accounting, Araize FastFund, and Sage Intacct are designed specifically for nonprofits and provide the structure needed to track restricted dollars accurately, prevent overspending or underspending, and ensure every expense is charged to the correct grant. With this level of clarity, organizations can quickly answer funder questions, stay compliant, and maintain the trust that future funding depends on.

There are many grant management software platforms available that help nonprofits strengthen these best practices, streamline grant tracking, and simplify reporting. If you’d like guidance on choosing the right tools for your organization’s needs, Welter Consulting can help you evaluate options and get you connected with the solutions that fit your structure, size, and goals.

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 us for more information.

Jul 31
0

Staying Calm in the Center of the Storm: How Leaders Mitigate Financial Uncertainty

By | Accounting, Nonprofit | No Comments

As we pass the midyear mark, many nonprofit leaders are pausing to take stock of the current economic and business climate. The turbulence of the last few months has left many pondering ways to mitigate uncertainty. With federal funds shifting, grants changing, and donors’ pocketbooks shrinking, nonprofit leaders must face the future with calm, deep determination, and a sound plan to guide them.

Three essentials form their plan:

  1. Diversifying revenue streams
  2. Delaying or reducing expenses
  3. Accelerating automation
person in office meditating while people yell at her

Nonprofit leaders who focus on these three essentials can weather the storm of uncertainty and lead their organizations to a successful future.

Diversify Revenue Streams

Diversification is the secret to managing uncertainty. There’s an old saying, “Don’t put all your eggs in one basket.” Nonprofits that put all their income “eggs” into one basket—relying on federal funds, for example, or heavily relying on a single grant or donor—may find themselves struggling if something unexpected happens. Federal funds can be cut or put on hold; grants may be awarded to someone else; donors may choose to give their money elsewhere.

To mitigate against this risk, it is vital to ensure that your nonprofit has multiple, diverse income streams. Examine the current revenue patterns; what are the risks? Even something that seems sure, like an annual fundraiser, can be risky if your organization relies on it for its sole source of funding.

Look for small but meaningful ways donors can contribute. Add new events, fundraising campaigns, and resources. Explore alternative grants and program revenues for additional funding. But above all, make sure you aren’t relying on a single revenue stream to support the entire organization.

Reduce or Delay Expenses

Look for ways in which you can reduce current expenses or delay new ones. Some ideas include reviewing recurring expenses and subscriptions and cutting back on duplicative services. Does the marketing department really need two graphic design programs, or can they use only one? You’d be surprised at how expenses can creep up over time. Comparison shop for major expenses, such as rebidding insurance policies and gathering competitive bids for contracted work, to ensure you are getting the best value for your money.

Delaying expenses is another tactic to improve financial stability during times of uncertainty. Can you wait to add new staff or launch a program? Examine upcoming budgets and expenses and identify ways to delay or defer major expenses.

Accelerate Automation

Accelerating automation means using technology to automate as much as possible, reducing manual work for your existing staff. AI is a good example of automation. Many nonprofit accounting systems now include AI components that can schedule invoicing and payment reminders, send documents for approval, and run and email reports to stakeholders without requiring people to key in requests. These rule-based systems save considerable time by performing common tasks without prompting. Explore the automations already built into your existing software.

Or consider adopting a new cloud-based nonprofit accounting system. Sage Intacct and MIP Fund Accounting both offer excellent nonprofit accounting platforms that can help you better manage your finances. These and other accounting and financial management systems can make it much easier to budget, forecast, and prepare for the future.

Navigating the Future

We can’t control the future, but we can take steps today to prepare for anything that comes up. Preparing for financial uncertainties includes diversifying income streams, reducing expenses, and automating as much as possible to free up staff time. When taken together, these three steps can go a long way toward laying the foundation for a solid financial foundation.

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 us for more information.

Jul 29
0

Payment Matters: Nonprofit Payroll Facts and Fiction

By | Accounting, Nonprofit, Tax | No Comments

Just because you run a nonprofit organization doesn’t mean that you work for free. Nonprofits, like their for-profit counterparts, hire workers and are required to pay all federal and state employment taxes.

Many people have misconceptions about payroll and nonprofits. Such misconceptions can be costly. Let’s look at the myths and facts about nonprofit payroll.

Myth busting: Fact versus Fiction in Nonprofit Payroll

First, how well do you understand the world of nonprofit payroll and employee classification? Answer “true” or “false” for each statement.

  1. Nonprofits’ employees’ pay rates are significantly lower than those of comparable for-profit organizations.
  2. Nonprofits are tax-exempt, so they don’t have to submit federal payroll taxes.
  3. A person who comes into the office, works on-site 40 hours a week, and receives a monthly payment can be declared an independent contractor if they sign an independent contractor agreement.
  4. Employee misclassifications aren’t a big deal; you just pay a fine.
  5. You can discard employee documentation after one year.

Every single answer was false, so if you marked any as true, brush up on your payroll and employee compliance knowledge. Even a small mistake can be costly when it comes to complying with employment classification and taxation rules.

Employee Classification

First, the tricky bit: employee classification. Nonprofits often have four categories of workers: volunteers, independent contractors (or freelancers), part-time, and full-time employees. Proper employee categorization ensures your organization remains fully compliant with federal and state tax and employment laws.

The classification that can trip nonprofits up the most is the difference between an independent contractor and an employee (full or part-time). The IRS guidelines for classifying employees have shifted over time, placing the burden squarely on employers to prove their classifications. And, if you misclassify an employee as a contractor, you can face stiff penalties and fines that can put a big dent in your organization’s finances as well as ruin the trust of your donors.

The IRS lists three general categories employers must consider when evaluating contractor versus employment status. There is no one ‘right’ or ‘wrong’ mix of responses. The evaluation considerations vary according to company and industry, but applying the so-called common law rules is important to avoid misclassification.

These common law rules focus on the degree of control and independence of the worker:

  • Behavioral: Does the payer control or have the right to control when and how the worker completes the job? For example, do you require the worker to provide services at your place of business, or, if a remote worker, require them to log on during certain business hours?
  • Financial: Are the business aspects of the person’s job controlled by the payer? In other words, does the payer control how the worker is paid, expense reimbursement, or benefits? Who provides the tools and equipment to the worker? Providing laptops and office space indicates an employment relationship, for example.
  • Relationship: Is there a written contract specifying the nature of the relationship? Does the worker-payer relationship continue indefinitely? Is the work performed a key aspect of the business? For example, an independent contractor is often hired for a specific project or task that no full-time employee can fulfill.

If these categories sound vague, they are – and it’s purposefully vague, since companies, industries, and roles vary considerably. However, using common sense and answering the questions honestly can point you in the right direction. And, when in doubt, treat the worker like an employee. If the IRS ever deems that person misclassified, the penalty is back wages, penalty fees, and more that can accrue to a much higher amount than what you would have paid for the person’s salary in the first place.

Payroll Taxes and Salaries

Another common misconception is that because nonprofits are tax-exempt, they are exempt from paying payroll taxes. This is a myth. You must file and pay relevant federal and state payroll taxes, including unemployment taxes, FICA (Social Security and Medicare taxes), and any relevant state unemployment taxes.

As for salaries, another common myth is that joining a nonprofit is like joining a religious order – in other words, that you are taking a vow of poverty. Nonprofit salaries can be equal to those of the for-profit world. In fact, they often must be to attract the best talent. Boards must often approve salaries, but as long as they are not deemed excessive, they can certainly reflect the ‘going rate’ for talent.

Outsourcing to Professional Payroll Processors

One approach for nonprofits to comply with payroll regulations is to outsource payroll processing to a third-party provider. These companies specifically focus on federal and state compliance, issue employee payments, and ensure appropriate deductions are taken and reported to tax authorities. They can often take a considerable burden from your accounting staff, especially if you work with remote employees and need to juggle multiple tax jurisdictions.

Employment and taxation laws can be complex, so work with someone knowledgeable in both if you have questions about your organization and its employment and tax practices.

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 us for more information.