Your nonprofit organization's mission often requires fundraising and spending on the part of your volunteers. Your group must have an easy way to account for expenses and make necessary reimbursements.
But what's actually required when it comes to nonprofit expense reporting, and what best practices should your organization leverage to improve this process? Let's take a look:
Reimbursement through an Accountable Plan
As nonprofit knowledge network Mission Box explained, your organization can leverage an accountable plan for expense reimbursement. Such a plan not only shields the group from having to report payments or pay taxes on them, but also prevents the reimbursed volunteer from having to include these monies in his or her taxable income.
In order to qualify as an accountable plan under Internal Revenue Service standards, the policy must only encompass spending related to the nonprofit. Volunteers must report spending within 60 days of it taking place. It's also their responsibility to return any extra funds within 120 days of the expense. These rules prevent reimbursements from having to be taxed and also protect the nonprofit against fraudulent reimbursement of personal expenses.
When expenses are reported as part of a nonprofit accountable plan, the following information should be included:
- The name of the individual who incurred the expense and requires reimbursement.
- The type of goods or services that were purchased, as well as the original receipt or service invoice.
- The date on which spending took place.
- The purpose of the expense, as it relates to the nonprofit.
With this information in hand, report approvers can ensure that expenses are recorded and organized according to the accountable plan, that reimbursements will not be taxed, and that approval and repayment can take place as quickly as possible.
In addition to outlining and organizing details about spending to support fast reimbursement, your nonprofit should also look to break down its expenses into different categories. This ensures that employees and managers have the most visibility possible over the organization's spending, and your group can account for how donations and other capital were used.
Accounting and consulting firm McKonly & Asbury explained that nonprofit spending categories can include:
- Program service expenses, including necessary spending that takes place in order to support the organization's stated mission.
- Fundraising, such as costs required to host a solicitation event.
- Management and general expenses, or costs tied to administrative activities like bookkeeping and day-to-day governance.
Leveraging Technology Alongside an Accountable Plan
While an accountable plan isn't a requirement for nonprofit expense reporting, the alternative typically involves repaying volunteers using a fixed allowance or stipend, resulting in individuals having to report and pay taxes on this income. As a result, many nonprofits are utilizing accountable plans to support better organization and visibility into group expenses.
One of the easiest ways to streamline your nonprofit's spending and reimbursement is to leverage an advanced expense reporting solution that automatically captures and provides all the information managers need to quickly approve reports and disburse repayment. Volunteers can easily complete reports from their mobile device, and your organization's leaders can access and approve reports in a much more streamlined manner.
To find out more about enhancing your nonprofit's expense reporting processes, contact us for a demonstration of our industry-leading expense reporting solution today.Back to Blog