How an Accountable Plan Impacts Nonprofit Expense Reporting

Tracking and accounting for spend is critical for any type of organization, but it's especially important when the group is a nonprofit. There are several critical rules that these groups must follow in order to achieve and maintain their nonprofit status, and when it comes to employee or volunteer spending, one of the most essential guidelines to keep in mind has to do with the organization's accountable plan.

What Is an Accountable Plan?

In short, an accountable plan helps a nonprofit track and organize spending related to the group's activities or other outreach. Transactions completed by organization directors, other employees, or volunteers must meet the requirements of the nonprofit's accountable plan to prevent the group from having to pay taxes on these expenses and enable individuals to qualify for reimbursement.

What's Included in an Accountable Plan?

According to financial firm Raffa, accountable plans should include several requirements:

  • Expenses must have been incurred to support the organization and its ability to provide services or outreach.
  • Any costs paid for by a member of the organization must be reported to organizational leaders within a reasonable period of time.
  • Reimbursement must also take place within a reasonable time period.

These requirements help ensure that spending is accurately tracked, that workers or volunteers are reimbursed quickly where appropriate, and that records can show that expenses are tied to the organization and its mission.

An accountable plan can impact the organization's taxes. An accountable plan can impact the organization's taxes.

Why Use an Accountable Plan?

Expense reporting and the associated reimbursements that take place according to the requirements of an accountable plan allow nonprofit leaders and volunteers to exclude these sums from taxable income. As legal firm Nolo pointed out, not only are these expenses tax-free, but they don't have to be reported to the IRS so long as they are incurred for the purpose of the organization and can be accounted for correctly.

An accountable plan doesn't just bolster expense tracking and reporting for nonprofits – it can also help eliminate fraudulent activity.

"These strict rules are imposed to prevent directors and employees from seeking reimbursement for personal expenses (or nonexistent phony expenses) under the guise that they were work expenses," Nolo noted. "An accountable plan doesn't need to be in writing (although it's not a bad idea). All your nonprofit has to do is set up procedures for your employees to follow that meet the requirements."

Best Practices for Your Accountable Plan

As Nolo recommended, it's good to record your nonprofit's accountable plan, including its requirements for tracking and reporting spending. This ensures that everyone who incurs expenses associated with nonprofit activities is on the same page and understands what their responsibilities are according to IRS standards for taxable income.

It's also important to keep the plan's time periods in mind. Expenses should be reported within 60 days of the transaction, and any money exceeding the cost of the expenses should be returned in less than 120 days, Nolo stated.

In order to meet these deadlines, employees and volunteers need a streamlined way to track and report their spending, and organization directors must be able to quickly approve reports and support fast reimbursement. An advanced yet simple-to-use expense reporting solution can provide the capabilities today's nonprofits need to align spending with their accountable plan and ensure quick and accurate reimbursement.

To find out more about how an expense reporting solution can benefit your nonprofit's accountable plan, contact us for a demonstration of Nexonia Expenses today.