Nonprofit accountants face a tough situation: they must meet strict demands from donors while not overloading their organizations with overhead. Donors want detailed tracking and reporting for restricted funds but also want to keep administrative costs low. This creates a challenge for CPAs who help these nonprofits.
During a recent webinar, Srikar Chinam, CEO of KarmaSuite, shared how accountants can assist nonprofit clients in alleviating the administrative burden of grant management with the right technology.
The Nonprofit Accounting Challenge
Traditional financial models fail in the nonprofit sector. Srikar explains, “In the nonprofit world, you can’t just calculate revenue minus expenses equals profit or loss because your revenue is restricted and might not align with your spending plans.”
This mismatch leads to three primary challenges:
- Labor-Intensive Grant Management: Each donor has unique budget categories and terminology. For example, one might separate “staff salaries” and “staff benefits,” while another labels it “personnel.” Finance teams spend countless hours manually adjusting data to fit each donor’s requirements.
- Optimizing Fund Usage: Program teams may overspend or underspend without clear visibility into grant restrictions, causing constant reallocations. Nonprofits often scramble to spend grant money before it expires while lacking funds in other areas.
- Difficulty in Forecasting: Restricted revenues that don’t align with operational needs make forecasting nearly impossible. This leads to fundraising teams overfunding certain programs while underfunding others, thus resulting in unrestricted funds being used up sooner.
These issues can lead to serious consequences. If you don’t track and document your expenses properly, you may have to return grant money. This is often accompanied by word spreading around on how your nonprofit was the reason why the donor couldn’t meet their impact goals for the year.
Transforming Grant Management with Technology
By using systems like KarmaSuite, nonprofits can simplify their compliance processes and make tracking expenses and reports much easier and more efficient.
Centralized Fund Repository
A centralized system acts as a main reference point for all information related to grants. Instead of setting up complicated sub-accounts, organizations can connect categories specific to donors with standard accounts. Srikar highlights that many government grants need clear explanations on how the money will be spent. The system automatically ensures that these guidelines are followed, making sure that funds are used correctly.
Real-Time Compliance Monitoring
Automated systems can quickly spot mistakes. In a demonstration, Srikar explained how an expense, which was mistakenly linked to a City of Oakland grant, was flagged right away because it didn’t match the related program. This kind of immediate detection helps avoid expensive errors that could be noticed later during audits.
Streamlined Reporting
Automated reporting takes the hassle out of handling data by removing the need for manual changes. This means organizations can quickly create reports tailored for individual donors, and those involved can easily access current information without changing anything, which lightens the workload for finance teams.
Automated Allocations
The only way to show the donor you’ve been compliant with grant restrictions is to manually allocate each expense to a funding source. This is extremely tedious and complex due to grant restrictions and grant expiration dates. KarmaSuite translates all grant restrictions into mathematical equations, understands the context of each expense, and allocate 100’s of expenses in seconds.
With this automation, accountants can shift their focus from managing details to providing strategic advice. This helps their clients improve the way they manage grants and make the most of their available funds.
Enabling Strategic Decision-Making
The real benefit of these solutions is that they help people make better decisions based on data.
Quick Scenario Modeling
Imagine a board meeting where someone brings up the possibility of a $1 million grant from the county for a new location. “Previously, you’d have to get back to them in weeks,” Srikar says. “Now, you can add expenses for the new location, include the pending grant, create a scenario, run the allocations, and see your funding gap—all during the meeting.”
Visual Indicators for Funding Gaps
KarmaSuite uses color-coded indicators to highlight areas needing attention:
- Red: Funding gaps
- Yellow: Expiring excess funds
This level of detail helps organizations see where they have extra resources or where they might be lacking, even within the same program, due to specific rules tied to their funding.
Strategic Fundraising and Planning
Organizations can explore different future scenarios, from cautious to hopeful, helping them plan for a range of possible outcomes. This ability changes how they approach fundraising, allowing teams to focus on specific needs instead of vague targets. When they need to ask donors for adjustments, they can use clear data to explain exactly what changes are needed and why.
These tools also help accountants become better advisors, guiding their clients on how to make the most of their funds and ensure that their financial activities align with their mission.
Turning Compliance into a Strategic Advantage
By using comprehensive financial management tools, nonprofit organizations can turn the challenges of managing grants into a valuable opportunity for growth.
Benefits for Nonprofits
- Improved Compliance: Centralized management ensures adherence to all donor restrictions.
- Reduced Administrative Overhead: Automation eliminates manual tracking and reporting.
- Enhanced Decision-Making: Real-time data supports strategic planning and resource allocation.
Opportunities for CPAs
- Strategic Advisory Role: Shift from compliance monitoring to providing strategic insights.
- Optimized Fund Usage: Help clients make data-driven decisions to maximize impact.
- Mission Alignment: Support clients in aligning financial practices with their core mission.
Watch the Webinar for More Insights
Excited to see how KarmaSuite can change the game for you? Check out the complete Earmark Expo webinar! Learn how you can assist nonprofit organizations in managing their grants more effectively.