Not-for-profits (NFPs) belong to the types of organizations that most frequently outsource bookkeeping, accounting and finance matters. For delivering such services to NFPs, advisors and accountants rely heavily on the processes within these organizations and, in particular, the financial controls that have been installed.
Why spend control is critical for not-for-profits
Due to their business model, typical not-for-profits have rather rigid and limited budgets determined from outside the organization. At the same time, spending needs of NFPs are not that different from those of profit-oriented businesses as they too have utility bills, purchase goods and reimburse expenses.
However, NFPs are faced with much stricter requirements in terms of authorization transparency, spend traceability and audits.
And, NFPs are generally not very tech-savvy or, for that matter, well-versed in accounting. Most of them have “external staff” who generate expenses or are responsible for authorizing spending.
If you want to learn more about ApprovalMax and how they help to simplify the manual approval process for nonprofits, check out our on-demand webinar, "Bill Automation Tech Stack: Establishing proper financial controls for accounts payable" here.
How to set up proper financial controls
Accounting firms serving NFPs need to go well beyond common compliance services and get deeply involved in both defining and enforcing financial controls across the client’s operations. At the very least this involves:
- Working closely with the client to identify how their money is spent. In other words – get a real-life picture of who spends what, when and why.
- Set up proper formal authorization processes that make sure all spending is properly authorized by the appropriate people within the client’s organization – before payment takes place.
- Provide detailed audit trails to document that the implemented approval process has been duly followed.
Spend control options: proactive, reactive, hybrid
There are several options for controlling spending, with each one focusing on a specific spend stage.
Proactive spend control works well when there is a formal buying process, e.g. with purchase orders. By setting up controls around purchase orders (who is authorized to raise them, what goods can be ordered, which suppliers can be selected, etc.) and establishing a robust review and authorization process, proactive spend control can indeed eliminate, or at least significantly reduce, unwanted spending before it occurs. Introducing proactive spend control is the right choice for not-for-profits that have many people engaged in similar, regular purchasing activities either in one or multiple locations, typical for educational facilities.
Reactive spend control ensures that incoming bills are actually correct and to be paid by the organizations. This is achieved by establishing a transparent review and authorization process for all invoices to verify details like the amount, supplier payment account, etc. before any money is paid. It also serves as an additional fraud control layer by allowing to filter out fraudulent or erroneous bills.
The hybrid approach combines these two options and serves as a comprehensive spend control framework. It enables to check the details of finance documents, to compare what had been ordered in a proactively controlled process with what is being billed and confirms that the ordered goods or services have actually been received. This cross-reference capability is called X-way matching.
Spend management app stack for not-for-profits
Establishing proper financial controls may seem tricky but with the right tools any accounting firm or advisor can do it. A powerful app stack for NFPs contains three essential components that make spend management effective, efficient and fully digital:
- At the core of the app stack is a cloud accounting platform such as QuickBooks Online, which also serves as the system of records for all pre-integrated apps. This provides a clear financial overview of the whole organization in real time and enables not only informed decision-making but also simplifies collaboration within the organization as all people involved see the same figures. A cloud accounting platform can be accessed from anywhere any time. That’s especially important for NFPs because volunteers usually don’t spend a lot of time in the office. With a cloud solution, managers can keep on top of finance, reimburse volunteer expenses or send invoices on the go.
- To maximize the time saving achieved by switching to a cloud accounting platform it makes sense to add a tool for digital data capture, like Receipt Bank. Data capture software automates manual data entry from paper into the accounting system with pinpoint accuracy and organizes all data using a mix of AI and human sorting. Document data is captured by simply taking a photo with this app, or by forwarding receipts to a dedicated email address. The tool then extracts the relevant information from the submitted document and allows to review everything before publishing it to the cloud accounting system.
- The last but by no means least component in the recommended app stack for NFPs is a process automation tool like ApprovalMax. This app moves the approval process outside of the accounting platform to keep external stakeholders out of it. After all, when board members approve a particular expense they don’t need to see all finance data. With ApprovalMax it’s amazingly easy to set up multi-layered bill and purchase order approval processes, which also provide a record of who approved what. It’s so much faster as there’s no need to carry paper documents around or wait for someone’s approval via email. ApprovalMax is also very useful for audit purposes because it automatically creates searchable reports that show a complete picture of all approval-related details, providing both a good aggregated view and the ability to easily drill down for any low-level details needed to perform analyses.
Setting up processes tailored to the organization’s specifics and with spend control in mind eliminates tiresome manual work so that NFPs – be it a charity, school or sports association – can focus entirely on their mission while fulfilling their obligatory tasks much more efficiently.
If you want to learn more about ApprovalMax and how they help to simplify the manual approval process, check out our on-demand webinar, "Bill Automation Tech Stack: Establishing proper financial controls for accounts payable" here.
Author Bio: Konstantin Bredyuk, Director of Product at ApprovalMax
With roots in business process management and optimization software development, Konstantin Bredyuk has undertaken hundreds of product implementations for ApprovalMax clients worldwide.
Numerous organizations have consulted Konstantin about bill automation and spend control app stacks, with business profiles ranging from SMBs to large accounting and advisory practices.