Nonprofit Cash Flow & Expense Management Guide. Scroll Down to Start

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1 Nonprofit Cash Flow & Expense Management Guide Scroll Down to Start

2 Introduction to Nonprofit Cash Flow & Expense Management Nonprofit Cash Flow & Expense Management Solutions Reimbursement Petty Cash Corporate Credit Cards Prepaid Expense Card Hybrid Card Solutions Nonprofit Cash Flow & Expense Management Tactics Cash-Based Systems Card-Based Systems How to Craft an Expense Report Report Template How to Craft a Grant Report Report Template 18 How to Enforce an Expense Management Policy

3 Introduction to Nonprofit Cash Flow & Expense Management Managing cash flow in a nonprofit poses many challenges. Cash is tight, and it s important to reconcile every single expense to ensure that funds are getting where they re needed. Foundations and donors usually require itemized budgets and expense reports as a condition of funding a project. Time is tight, too, as staff at nonprofits often juggle many responsibilities. Staffing is often in constant flux, with temporary volunteers or unpaid interns supplementing paid staff and making purchases on the nonprofit s behalf. Nonprofits need an expense management solution that outlines how staff receives funds to make purchases on behalf of the organization. There are several types of solutions, and the right one for your nonprofit will depend on its size, resources, and ease of implementation within your organization.

4 Nonprofit Cash Flow & Expense Management Solutions Solutions: While cash flow and expense management solutions are necessary for all nonprofits, each type of solution carries its own benefits and risks. Reimbursement Petty Cash Corporate Credit Cards These solutions are not one-size-fits-all, so it s essential to consider which system satisfies your organization s unique needs, and which will reduce the hassle and risk inherent in all financial transactions. Prepaid Business Expense Cards Hybrid Card Solutions

5 Reimbursement The reimbursement process relies on using staff s money upfront to make purchases on behalf of the organization. Pros: o Frees up cash, as expenses are not paid immediately by the nonprofit o Allows staff to make purchases on the fly o No credit risk to the organization o Easy to vet fraudulent expenses o Allows staff to pay for unexpected expenses Staff making purchases on behalf of a nonprofit, whether traveling or buying supplies for an event, will purchase needed items with their own debit or credit cards. These purchases are then refunded at a later date by the employer s finance department. This solution is practical for small nonprofits and when small purchases are made. It allows financial controllers to reliably process reimbursement receipts. And while the process is time-consuming, reimbursement solutions return accurate transactions and reports. Reimbursement solutions are also among the least risky solutions for an organization, as all funds and reimbursements are vetted by your financial controller. The key downside is inconvenience to your staff especially volunteers, who aren t paid by the organization for their efforts and may be on limited incomes. o Staff can accumulate reward points for nonprofit expenses Cons: o Control on unauthorized (not necessarily fraudulent) purchases comes after the transaction occurs o Requires staff to spend their own money o Staff may not have access to enough credit to make purchases o Can be difficult to ask volunteers to spend cash out of pocket, especially low-income volunteers o Staff who carry balances on their personal credit cards pay finance charges on organization expenses o In larger nonprofits, multiple levels of approval can cause delays in reimbursement o Potential for reimbursement issues resulting from lost receipts o Not a scalable solution for large organizations

6 Petty Cash Petty cash functions by providing funds for expenses in cash form, in advance of purchases. Pros: o Simple process for small nonprofits with few expenses or a small staff o Does not burden staff with fronting funds for expenses o No credit risk Those funds are logged and then distributed to staff based on projected expenses for each job, event, or trip. The staff member is responsible for handling the cash, making purchases, and keeping receipts. After a task or trip is completed, the receipts and the change are given back to the financial controller, who ensures the purchases were legitimate and the correct change was returned. While petty cash makes sense for some small organizations, this solution is plagued with security risks, and depends heavily upon staff to keep receipts. Fraudulent spending and the loss of receipts or change make accurate reporting to donors and grant foundations difficult a significant problem for any nonprofit. In addition, distributed funds should always be higher than projected expenses, to ensure the staff member has the full amount they need. This results in errors and reduces available cash for other nonprofit initiatives. o No interest charges or bank fees Cons: o Creates opportunities for overspending and theft o Difficult to manage, especially for remote staff o Errors in accounting are common, making it difficult to report accurately to donors, grant foundations, and the board o Causes delays and inefficiencies if staff member does not have funds on hand o Not feasible or secure for large purchases, such as staff member travel

7 Corporate Credit Cards Corporate credit cards require the nonprofit to establish a line of credit with a credit card organization, the amount of which will depend on the organization s revenue and credit history. The crediting body distributes cards for staff member use. Pros: o May improve organization s credit rating o Easier to track expenses through bank account o Enables a nonprofit to spend more than cas would allow (may be a disadvantage) o Cash-strapped nonprofits may benefit from credit card rewards such as airline and bonus points These solutions carry large risks associated with your organization s credit, as the organization is ultimately responsible for all staff member charges. In addition, there are fees associated with overspending and making late payments, making it a potentially expensive solution, although the cost is partially offset by airline and bonus points, which can help cash-strapped organizations. The risk for fraud is present as well. Staff may make illegitimate charges, or may have their cards stolen and charged. The risk is increased with volunteers, since volunteer bases may change often and some volunteers may be from at-risk backgrounds. Cons: o High interest rates for when carrying balances from month to month o High fees for late payment or over limit spending o Opportunities for staff member misuse of card o Volunteers are not always vetted in the same way as employees, increasing risks o Impractical for organizations with large volunteer bases that change constantly o Credit line may not be high enough for all nonprofit spending o Receipts still needed for expense reporting, a cumbersome manual process

8 Prepaid Expense Card Prepaid expense card solutions utilize a prepaid debit card system for staff to make charges on the organization s behalf. Typically, the organization will fund individual cards or department cards in different amounts, depending on need and expected spend. Staff members make necessary purchases and keep their receipts, which are then tallied and measured against expected spend. Pros: o Fast, flexible funding o Simplified expense reporting by syncing with accounting software o Allows for control over spending in specific merchant categories (i.e. yes for gas, no for restaurants) o Control occurs before transactions take place, not after o Seamless control of limited budgets for both staff and volunteers o Allows daily spending limits o No credit risk or potential extra fees A prepaid expense card solution is the safest, most accurate cash flow system that exists. Because staff and volunteers can only spend as much as the organization provides and there is no line of credit, the risk of overspend is nonexistent. In addition, proprietary software facilitates seamless control and tracking of budget, reducing reliance on receipts, and making reconciliation easier. Cons: o May be unnecessary for nonprofits with a small staff o Not required for nonprofits with a very low volume of easily traceable expenses. o Capital must be on hand to fund staff member cards

9 Hybrid Card Solutions Hybrid solutions enable organizations to provide corporate credit cards to senior staff while using prepaid expense cards for other staff that may need to spend on behalf of the organization. Pros: o Reduces risk of staff member misuse, as only select senior staff are provided credit cards o Increases efficiency of expense management and reporting for the vast majority of staff, especially with proprietary software integration o Previously stated advantages of corporate credit cards and prepaid expense cards This solution allows organizations who have already invested in corporate credit cards to diversify and take their first step toward transitioning into a more efficient prepaid expense card solution. Cons: o Potential for fees and interest charges on credit cards still in use o Previously stated disadvantages of corporate credit cards and prepaid expense cards

10 Nonprofit Cash Flow & Expense Management Tactics Once you choose an expense management solution, how do you go about implementing it, and more importantly, how do you enforce it? Ensuring that all of your staff, including senior staff, follow the guidelines of your new expense management solution is essential for its success. See our tactic guidelines below. Scroll Down to View Our Solutions

11 Cash-Based Systems Petty cash or reimbursement can work for nonprofits as a starting point, but may put undue stress on staff. Cash-based systems are especially burdensome for busy staff or volunteers who may not be able to front cash for expenses or want the responsibility of petty cash. If you have chosen to implement one of these systems at your organization, you should first answer important questions like: 1 What happens if a staff member does not return correct change? 3 What if a staff member s funds are stolen from them? 2 What happens if a staff member loses a receipt? 4 Who is responsible for any missing funds? Understanding the level of financial responsibilities placed on staff while utilizing these cash-based solutions is imperative for successfully running a responsible and fair petty cash or reimbursement system. Where staff s responsibilities end and management s begins should be clearly stated in a document and distributed to all who have access to the system. Where volunteers will be making purchases for the nonprofit, the solution should be part of volunteer training. To ensure that your cash-based system runs smoothly, there should be documented procedures concerning the distribution and collection of cash, and the reimbursement of staff. As long as everyone understands the rules and processes and follows them, your cash-based system will run smoothly.

12 Card-Based Systems All card-based nonprofit expense management solutions reduce the responsibility of the individual staff member, as funds can be managed and tracked more accurately than a cash-based system. Still, guidelines should be put into place to instruct staff on proper use, as the organization is ultimately responsible for paying off balances. If your organization has chosen a card-based system, you should be able to answer the following questions: 1 Who controls the cards, and where are they stored? 3 Who is responsible for approving the distribution of cards and funds? 2 How often will the balances and transactions be checked? 4 How can staff acquire additional funds if the funds on their card are insufficient? Whether your funds are distributed through a debit card solution, or tallied and double-checked through a corporate credit card solution, you should have processes in place to deal with the dissemination of funds and to ensure spend does not surpass limits. Particularly if volunteers use cards, the list of cardholders should be reviewed often, with unnecessary cards recalled or cancelled. Implementing a card-based solution doesn t end with giving staff members their cards. Resources have to be dedicated to ensuring the system is runs smoothly, and both organization and staff member needs are met.

13 How to Craft an Expense Report For most nonprofit expense management systems, expense reporting is the necessary final step in recording your transactions. Your expense report should take into account the industry your nonprofit falls under, and the necessary information required to accurately record all transactions to be in compliance with governmental standards for record keeping. Scroll Down to View More

14 Generally, your expense report should catalogue the following information: Name of Employee Name of Supervisor Phone Number of Supervisor Distributing Department Date of Expense Type of Expense Description of Expense Employee and Supervisor s Signature Type of Distribution Amount of Expense Take a look at the following example expense report to learn how to effectively report organization expenses. Then go to for your own printable version. Scroll Down to View More

15 Although most card-based solutions follow this same process for expense reporting, some prepaid expense cards offer reporting features that drastically reduce reporting time by eliminating many of these steps. There are also several automated expense reporting solutions available in the market, which significantly reduce the amount of staff member, management, and review time associated with managing staff member expenses. Although many will work with expenses on any cards, others are specific to a card brand. They also charge fees so they often work better for mid-size or larger organizations rather than small nonprofits. Scroll Down to View How to Enforce EM Policy

16 How to Craft a Grant Report Foundations generally expect a full accounting of how their funds were disbursed and the results of a specific funded program or project. Grant reports include a narrative component, focusing on what the project achieved and what was learned, and a financial report. Here, we ll focus on the financial aspect. Foundations may have specific forms or requirements for grant report, but there are some general guidelines to what most grantors require. Scroll Down to View More

17 The financial section of your grant report should generally catalogue the following information: Name of organization List of approved line items and amounts Contact person, title, and position Actual spend on each line item Contact address, phone, and Name of donor Explanation of significant variances between budgeted and actual spend Amount of original grant Amount of actual spend Budget approved by the foundation or donor Explanation of overall surplus or deficit Go to for your own printable version of our grant report template. Scroll Down to View More

18 How to Enforce an Expense Management Policy As stated before, the enforcement of an expense management policy is essential for the function of the chosen solution. Enforcing a policy begins with management and moves down to individual staff members. Policies and rules should be decided by your financial controller, approved by senior management, and distributed to all staff who will have access to funds. Strict adherence to these processes is essential to accurate reporting and minimization of risk. Scroll Down to View More

19 In most cases, there are seven steps for requesting, distributing, and reporting staff member expenses. 1 The staff member submits a request for funds. 5 The staff member uses the distributed funds to pay for the nonprofit expense. 2 The request is approved by a supervisor, and sent to the financial controller. 6 Depending on the system used, either the staff member, supervisor, or financial controller fills out and submits an expense report. 3 The financial controller receives the request and approves it. 7 The financial controller approves the expense report and processes it. a. If reimbursement is used, the staff member is then refunded 4 Funds are distributed via petty cash or staff member prepaid expense card. for purchases. a. If a credit-based solution has been implemented, the financial controller pre-approves and directly pays for the expense, or the staff member is given the corporate credit card. Your organization s expense management process should be streamlined for the efficient distribution of organization funds, and flexible enough to allow immediate distribution in the case of an emergency expense.

20 PEX Card is Here to Help PEX Card, a prepaid expense card solution, takes the hassle out of enforcing expense management policy and enables staff to get their jobs done. When cards are issued to staff members, they may spend funds only at pre-selected merchant categories (like gas stations), while declining payments in other categories (like restaurants). In addition, each card may be assigned its own spending rules, giving nonprofits specific control over each staff member s ability to spend organization funds. PEX Card allows nonprofits to: Add and remove funds on the fly Track expenses in real time on desktop or mobile Avoid interest charges and overdraft fees Export transactions to accounting software for faster reporting Suspend and reactivate card use temporarily Place daily maximums on spending To learn more about how PEX Card can save your nonprofit time and cut the cost of making a difference, get your PEX Card Fact Sheet for Nonprofits now. GET FACT SHEET