Reporting expenses is an important job in every line of work, but for nonprofits, tracking every type of spending that takes place for the good of the organization is imperative. Ensuring nothing goes to waste is essential, but nonprofits also have specific industry rules that they must follow, and these impact expense tracking and reporting in particular.
IRS Form 990
Tax time is a little different for nonprofits, specifically those tax-exempt groups and any organization that is a private foundation. These groups must file Form 990 with the Internal Revenue Service each year by the 15th day of the 5th month of the organization's fiscal year, according to the IRS.
Form 990 is a little different from the tax forms used by for-profit companies and non-charitable institutions. Unlike corporate IRS forms, the 990 is used by the IRS as well as other groups and interested parties - this form compiles details about the nonprofit's mission, the programs it supports, and its overall finances, and is publicly accessible.
"Because the data are readily available, most donors, funders, and charity watch-dog agencies calculate program-spending and fundraising-efficiency ratios using Form 990 data," In Focus authors noted in a CPA Journal report, "Functional Expense Reporting for Nonprofits."
Accuracy Is Paramount
Because Form 990 is a public-facing document, nonprofits must verify that their expenses are in order, and are categorized according to the form's specific delineations. Expenses must be separated into three different umbrellas, including program expenses, administrative expenses, and fundraising expenses.
While there are no hard-and-fast rules about how a nonprofit's budget should be spent, Form 990 helps show how the organization's donations and other capital are used. In this way, accurate bookkeeping and expense reporting is absolutely critical.
The Growing Issue of Problematic Calculations
In Focus noted that in some cases, reporting of expenses within Form 990 isn't error-free. In fact, some nonprofits' calculations simply cannot be accurate, including instances where organizations report zero fundraising costs, or report zero management and general expense costs.
This type of situation can create distrust among potential donors and financial supporters, not to mention issues with the IRS. Nonprofits expense reporting must be done in the most accurate way possible.
Calculating and Categorizing: Where Travel Fits In
A big part of supporting accuracy is correctly categorizing expenses as they relate to the three sections of IRS Form 990. Legal resource provider Nolo noted that things like teaching a class or delivering goods and services to the less fortunate would fall under program expenses. Costs including those connected with board of director meetings, insurance, human resources, or office management would be considered administrative expenses. And things like publicizing an event or supporting a funding campaign would be included in fundraising expenses.
When nonprofit employees or volunteers take part in travel as part of their organization's mission, these expenses must be carefully tracked and reported. Numerous costs can come up, including flights or other transportation, lodging, and food. These expenses should be categorized according to the activity they relate to. For instance, if travel takes place as part of delivery of goods or services, costs should be reported as part of program expenses. Travel to support a special contribution soliciting event, on the other hand, should fall under fundraising expenses.
However nonprofits leverage their travel, the important part is to verify that all expenses are properly tracked, recorded, and accounted for. Accuracy and transparency is critical, especially when it comes to the ways in which nonprofits use their financial resources. One of the best ways to support this is with an advanced expense reporting solution. Such technology can ensure that employees and volunteers have an easy way to track their travel spending, can be easily reimbursed, and can help make certain that no expense goes unreported or otherwise falls through the cracks.
Correct expense reporting is particularly critical for nonprofits, especially as it relates to IRS Form 990. A streamlined expense reporting solution can make all the difference here, providing a transparent way for administrators and staff to manage, calculate, and categorize expenses.
To find out more about how technology can improve your nonprofit organization's accurate and transparent expense tracking, contact Nexonia for a free customized demonstration today.Back to Blog