How Nonprofits Can Benefit from Modernizing Their Expense Management Processes

A non-profit organization has a special set of financial circumstances to consider: Every dollar spent may be viewed through the prism of public trust and charitable impact. These groups aren't just maximizing shareholder value or profits, but demonstrating accountability to donors, communities, regulators, and board members. In other words, they can expect a much higher level of scrutiny over how they spend money and how they operate compared to a standard business.

This level of scrutiny permeates every organizational level, including expense management. To stay credible, nonprofits need to ensure that expense management is governed by a spirit of transparency, along with sound-decision-making. Donors often want detailed reports about how contributions are being used, and oversight from regulators often comes with stringent requirements. Without transparent expense tracking and reporting, you can fall victim to serious financial and reputational harms.

So how should today's non-profits respond to these urgent challenges? The most impactful step one can take is the implementation of automated expense management processes that replace outdated manual efforts. Using an advanced, AI-powered expense management platform takes transparency to a vastly higher level and helps demonstrate financial accountability. They also greatly reduce administrative burdens, an important consideration for non-profits, many of which must operate in a lean and agile way that minimizes overhead and maximizes the real-world impact of donations.

The Importance of Expense Management for Nonprofits

As we mentioned, nonprofits rely on public trust and must be responsible stewards of their donations. Smart expense management plays a critical role in maintaining that public trust.

Today's donors expect the highest level of transparency regarding where their money goes. They want program expenses, admin costs, and the direct impact of their donations to be clearly delineated and tracked. The ability to produce comprehensive reports showing how funds are allocated is essential for continued fundraising success. If your non-profit can show low admin overhead and high direct impact ratios, this bodes well for foundation grants and major donations. To create these reports, you need an expense management system that can categorize costs and generate detailed data showing how money is spent.

Compliance is another area of utmost importance for non-profits, which face complex requirements that depend on factors such as size, scope, revenue and jurisdiction. Often precise expense categorization and documentation is required by tax authorities, and federal grants may come with their own requirements for reporting and expense tracking. If you don't meet these regulations, you can lose tax-exempt status and face penalties and sanctions. Manual expense management invites errors and inconsistencies, as people must remember sets of (sometimes conflicting) policies and rules regarding expenses. This, in turn, creates a higher level of compliance risk for non-profits.

Non-profit boards also have a role to play, reviewing expense patterns, monitoring spending and more. These boards need detailed financial records, ideally presented in an easy-to-read report. A modern expense management system can create these reports and get boards the data they need to govern, while also providing those boards with a high degree of confidence the data is accurate and comprehensive. This means boards can make more informed decisions about strategic planning, policy changes, budget approvals etc. while also ensuring compliance requirements are met.

It's also common for nonprofits to juggle multiple funding sources with their own restrictions on how funds can be used. A grant may come with specific requirements for reporting, documenting and tracking, and nonprofits need to show that they are using these funds for their approved reasons. If you're using paper-based manual tracking processes, it's extremely challenging to manage multiple grants at once and you run the risk of misusing restricted funds. This can lead to grant termination or loss of trust with funding partners.

Other Challenges Nonprofits Face

Non-profit organizations have very specific challenges that aren't necessarily shared with other types of organizations, and these challenges can make expense management an even bigger priority. Let's walk through them quickly.

Many nonprofits have limited resources and staffing shortfalls. Workers wear a variety of hats and have a portfolio of diverse responsibilities. The finance team may be stretched and lack expertise with expense management systems. Some non-profits are slower to modernize because the upfront cost seems prohibitive. This leads to a cycle where they get more and more shorthanded and resource constrained, as they struggle with slow manual processes that have long been automated elsewhere.

Dealing with a complex web of funding sources is also a headache for expense tracking and reporting. One grant may have allowable cost guidelines, another may restrict spending to specific areas or even geographic regions, and individual donors may have their own rules for their contributions. Tracking all of this manually can be a massive task, and categorization errors are common with such complexity.

Nonprofits may have variable spending patterns based on seasonal activities or program cycles, which can make budgeting nonprofit expenses and management of cash flow difficult. Manual expense tracking lacks the real-time visibility to help manage such fluctuations.

Finally, volunteer and board member nonprofit expenses must be tracked, and these people may be unfamiliar with all expense policies, making proper documentation and compliance exceedingly difficult to maintain. Delays, errors, and compliance risk comes from this unfamiliarity.

How to Modernize Your Nonprofit's Expense Management

While the aforementioned challenges present serious and ongoing risks, there is a way forward. You start with clear expense policies and training and you adopt the right supporting technology.

Automated expense management solutions such as those offered by SAP Concur are especially valuable to non-profits because they are cloud-based and mitigate upfront technology costs while providing enterprise-grade functionality. They integrate easily and scale with your organization, making them a fit no matter how large or small your operation.

Most importantly, these solutions use automation to solve all of the problems we have discussed. Instead of dealing with complex webs of categorizations and grants and donors with their own detailed requirements, all of that is effortlessly automated. The risk of errors and non-compliance drops dramatically.

These solutions also save extraordinary amounts of time, as manual expense submissions and approvals now occur automatically. Employees, board members, and volunteers can now submit expenses with a mobile device, rather than a receipt. An intuitive user interface ensures expense processes are easily understandable regardless of your tech savvy. Stretched thin workers are now freed up to work on other tasks.

Advanced reporting capabilities also make it easy for nonprofits to demonstrate value. They can show exactly where all funds are going, and make the case that they are transparently serving the public and maximizing real world impact. Detailed audit trails ensure that all documentation is complete and ready for donor requests or tax authorities.

The Takeaway

If your nonprofit is seeking to maximize its mission impact while maintaining the highest possible level of transparency and accountability, SAP Concur can help. Our tools can transform expense management from a burden to a strategic advantage that builds trust. For more information, get to know SAP Concur