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The Best Kept Secret: Nonprofit Expense Management

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This summer, there is a good chance that you, or someone you know, will be participating in a walk/run dedicated to supporting a nonprofit organization. You may also see several kids standing outside supermarkets, stores, or at traffic lights asking for contributions on behalf of their charity of choice. While donating money or time is extremely gratifying and rewarding, it’s important to note that nonprofits function just like a business.

Nonprofits also manage budgets, pay salaries, possess the latest technology, engage in networking events, and keep petty cash in mind for unexpected costs and expenses. So how do accountants who work on behalf of nonprofits ensure that the maximum amount of donations are going to the cause, while also leaving room for operational costs?

The best and most efficient way to control a nonprofit’s expense management and accounting procedures is to establish proper controls and policies across all departments and categories. From there, the next steps are to implement these plans, and monitor employees’ spending habits.

There will also be times when nonprofits need to be creative. For example, when it comes to petty cash, the key is to establish a maximum allowance per person, listing out appropriate and inappropriate expenses, and setting a procedure for submitting expense reports. For larger expenses, such as purchasing equipment or technology, accountants and other decision-makers can purchase refurbished equipment, and partner with socially conscious tech companies. Crowdsourcing sites even exist specifically for nonprofit campaigns. Mixing tried-and-true protocols with newer and digital options can go a long way in the fight against incurring unnecessary expenses.

Differentiating Regular Employees from Volunteers

Most accountants will tell you that one of the hardest expenses to manage are salaries, commissions, and other employee-related fees. But what about the expenses that these employees rack up? Company cards can be given to both regular employees and volunteers who are delegated with some of the tasks that are associated with spend requirements.   If you go this route, however, make sure that the cards come with controls that enable the organization to manage very tightly how much is available to each cardholder as well as where the cards can be used.

In the case of an event, a nonprofit organization often hires “freelance” volunteers. Nonprofits vary greatly in ratio of paid staff to volunteers, and whether they are volunteering for a day, a couple of weeks, or once a month, these “freelancers” are often asked to do things for the organization that involve spend authority. Sometimes, with so many people involved, and several ongoing matters, it can be tough to know who is managing certain projects.

On the day of an event, a regular employee might know to save money and get the cheapest version of an item available. However, would a volunteer use the same judgment? Probably not, as they have no regular connection or involvement with the organization. It is important to know who is taking care of these “day of” tasks, and prepare accordingly. In this case, a volunteer’s spending habits need to be regulated, as they won’t be familiar with an organizational budget.

The Role Independent Vendors Play

A nonprofit organization’s independent vendor list can read like a party planner’s Rolodex. There are photographers, DJs/entertainment companies, decorators, furniture suppliers, and food/drink providers. Nonprofits need to ensure that these vendors don’t overcharge them based on their budget. For every apparel vendor that works pro bono, or donates their fee to the cause, there are several that can charge $499 when a nonprofit’s budget is $500. And what if a nonprofit wants to hire on-site talent to an event to draw more crowds? How do you fit that into the budget?

Solving these challenges and keeping expenses as low as possible means delegating the associated tasks and decision making to full-time employees in management positions who can track budgets and ensure that selected vendors are not out of the budget. Obviously, every nonprofit wants to create a big splash and host successful events to increase fundraising, but there needs to be a limit on the costs involved. Having someone who can take a step back and look at the big picture is essential, especially if this person has the authority to make firm decisions. 

There is no easy way out of managing expenses, but with a nonprofit, these principal responsibilities are under so much more scrutiny. It takes closely monitored and tracked accounting to guarantee most of every donation goes to benefiting the cause, and not into the wallets of other individuals or companies.

Toffer Grant is CEO and founder of PEX Card.

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