Financial productivity

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Financial productivity

Expense management for Non-profit organization

April 11, 2019
Min Read

Did you know that more than 13% of all fraud cases reported happened in nonprofits? Many of these frauds occur in the reimbursement process.

Expense management for non-profits can be a daunting task for both accountants and employees. On the one hand, employees find themselves in a dilemma over spending decisions. On the other hand, accountants struggle to track and account for expenses in the books. As a result, project managers, in turn, find controlling their expenses challenging.

With complexity in management, negligence follows. Employees often end up submitting claims without appropriate bills. Accountants overlook expenses which violate expense policies or approve fraudulent claims. Additionally, project managers may overshoot their budgets due to the lack of effective tools to enforce better spending control.

This is the most crucial problem with expense management. Seemingly small, it is often listed in the bottom of everyone’s priority list. Repeated negligence often leads to a snowball effect which ultimately shows up as underspending towards the cause, and overspending on operational costs.

An expense management software can help eliminate these bottlenecks and enhance control. Though spreadsheets might look tempting for managing employee expenses, they are not sufficient. The same is true of systems built on ERPs. Though these methods serve as a basic tool for managing expenses, they lack a crucial component - controlling and managing business expenses.

SUGGESTED READ: Top challenges a travel and expense management software helps solve

Challenges addressed by expense management software

Visibility into project expenses

Project managers are required to ensure maximum funds are spent towards a cause with minimum wastage. This can be difficult if there is no visibility into the spending trends of employees and volunteers. Further, the problem can compound if projects are run on limited or low budgets.

To help address this challenge, leading nonprofits have now begun to use travel and expense management softwares. An expense management software can bridge the gap between expense data and the project manager. This helps organizations make decisions backed by data rather than mere assumptions. With expenses flowing in real-time, a manager is always ahead of the curve as he precisely knows how much funds are at his disposal.  

Lack of categorized expense data

With traditional ways of managing expenses, it is difficult to get categorized spend data. But, cloud-based expense management doesn’t face this problem as categorization happens at expense creation.

Many solutions use OCR (a technology for data extraction from receipts) for reporting expenses from mobile devices. Categorization is easy as accurate expense data is available and the software is trained to identify categories from millions of receipts.

Accurate categorization of data is a real charm for controllers and finance leaders. Donors often want to understand where their money is spent and spend data gives them visibility into this. Additionally, data on employee expenses can help CFOs in forecasting fund requirements with confidence.

Consolidating expense data with an accounting software

With a significant paper trail gathered from past expenses, recording expenses on the accounting software pose the final challenge. To help combat this challenge, organizations can configure their expense software to sync with their accounting software. Integrations with accounting software ensure employee expense data is reported along with other income and operational expenses.

Expense management software come with integrations with popular accounting software like Quickbooks Online, Xero, NetSuite, and others.

Nonprofit travel and expense reimbursement guidelines

Expense management software is almost worthless if there aren’t expense policies in place to control spending. Monitoring the levels of compliance and improving policies can help nonprofits in saving money. Additionally, it can help curb unnecessary spends and hidden costs. Though most organizations have their own set of policies to suit their needs and structure, a few guidelines hold true for most.

Mileage and other expenses

Some nonprofits reimburse mileage expenses for employees while others don’t. If your organization does reimburse mileage expenses, it is best to follow the IRS guidelines for mileage reimbursements. Here, the mileage expenses are based on vehicle types. A best practice is to ensure that employees are aware of reimbursable categories. It also helps to specify the maximum reimbursable limits for all categories. An expense management software with real-time policy checks can help employees by determining whether a particular spend falls out of policy limits.

Define purchase authority

Often, employees and volunteers are required to purchase items for projects. When expenses are well within the purchasing capacity of the employee, they make a purchase first and later claim for reimbursement. The problem here is “reasonable limits” are subjective and may vary from one person to another. Defining purchase authority for both employees and volunteers can help in reducing this subjectivity. The employee can seek approval for purchases beyond a predetermined amount. The same policy can be set up within the expense management software to make sure no out-of-policy reimbursements happen.

Project-specific expense policies

Projects are central to a nonprofit’s functioning. Most often, they also vary depending on geographical locations. Each project has its own set of unique challenges and associated expenses. While most expenses are covered under organization-wide policies, project-specific policies do play a critical role in some cases. When need be, expense management software can be configured to run policy checks on specific project expenses, as well. In such cases, project-specific policies take precedence over all other expense policies.

To combat these challenges, many nonprofits are now migrating to cloud-based expense management softwares. With an increase in fraud, donors expect better visibility and accountability for expenses. With better controls, increased visibility, and spotless audit trails, an automated expense management software, is the way to go forward.


Expense Management Solutions For Nonprofits

How can expense policy compliance benefit your business?

Are you a nonprofit looking to streamline and automate your expense management? 

Fyle is an expense management software which uses AI for data extraction, policy checks, and approvals. We provide discounts of 15% and up, for nonprofits. Join us for a demo and discover how Fyle can benefit your organization!


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