Nonprofit organizations receive two types of donations: restricted donations (temporary or permanent) that must be used in designated ways, and nonrestricted donations that can be used however the nonprofit prefers.
Accurately tracking restricted and nonrestricted revenue is essential, because organizations have to demonstrate—both to donors and auditors—that all funds are being spent according to donor wishes. Accurate tracking also streamlines audits and enables nonprofit organizations to identify the net assets available at year-end for general versus designated uses.
Tracking headaches of restricted and nonrestricted revenue
The challenge many nonprofits face is that tracking restricted and nonrestricted donations can be a difficult and time-consuming hassle, especially with multiple funding sources and contributions that have different types and lengths of restrictions.
Spreadsheet-based revenue tracking is especially problematic because it’s a manual process that can lead to errors, double-counting, and incomplete data entry. If the spreadsheets aren’t linked to the accounting system, any voided checks or reclassifications have to be manually updated, which is one of many places where errors can creep in.
A better way forward
Implementing a modern ERP solution like Sage Intacct can help nonprofits automate and improve the accuracy of both restricted and nonrestricted revenue recognition. One important advantage of Sage Intacct over spreadsheet-based processes is that revenue recognition can be centralized inside the accounting system, which provides added visibility into real-time revenue conditions and restrictions, as well as insights into the organization’s revenue by type.
Sage Intacct’s cloud technology provides a further advantage, simplifying fund management by tracking restrictions as well as their release dates. Users can tag grants to specific programs and build real-time reports that show usage by fund and program.
Nonprofits can also use Sage Intacct to drill down into revenue to see details such as how much of their donations are restricted versus unrestricted. It’s easy to see real-time information on how much has been spent and how much remains, which can then inform strategic decisions such as when and where to spend unrestricted funds.
Get the support you need
Insero & Co. is a public accounting firm with over four decades of experience working with nonprofit organizations of all sizes. Our dedicated experts are available to help nonprofits of all kinds with outsourced accounting services, audit services, and employee benefit plan audits.
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About the Author: Kimberly Gangi
