The activities of non-governmental organisations have their own specifics, including accounting and reporting. And proper accounting for non-profit organisations is a key factor in ensuring financial transparency and compliance with legal requirements. It is also important for effective cash management. In this article, CeDePe experts describe common accounting challenges for NGOs and give practical advice on how to overcome them.
Setting up financial accounting for grants and earmarked funding
Non-governmental organisations (NGOs) do not conduct business activities. Most often, they receive funding in the form of grants. It is important to correctly reflect these receipts in the accounting system and keep their separate accounting records. Such funding also requires strict accountability for the use of money. How to set this up?
Recently, an NGO received a grant from an international foundation and turned to CeDePe for help with accounting. First of all, we did:
- Created separate analytical accounts for each grant.
- We organised the distribution of expenses by category (purchase of equipment, salaries, administrative expenses, etc.).
- We automated the reporting process using an accounting programme, which allowed us to quickly generate the necessary reports.
These three steps at the start greatly simplify the work, help to track the use of grant funds and ensure financial transparency of accounting.
Keeping records of voluntary contributions and donations
While grant funds are received in one or more instalments, donations to an NGO are received in larger or smaller amounts all the time. Voluntary contributions and donations make up a significant part of an NGO’s budget. Correct accounting of these funds helps to avoid financial risks and ensure the trust of donors.
What is important to consider?
- Register all receipts with information about the source of the contribution.
- Keep separate records of funds received for different projects.
- Provide regular reporting to donors and government agencies on the intended use of funds.
Use of grant funds: risks and their prevention
Grants and targeted funding should be used only for the purpose specified in the agreement with the donor. Violation of these conditions can have serious consequences.
There are several common problems that organisations often face:
– Misuse of funds for other purposes.
– Late submission of financial statements.
– Insufficient documentation to support expenses.
If any of the mistakes were made, it is not good, but not critical. How to fix the situation?
1. Conduct an internal audit and documentation of expenses.
2. If violations are found, return unused funds or provide a detailed explanation to the donor.
3. Develop a stricter system of financial control and reporting.
Violations often occur by accident, due to inattention of the organisation’s managers, etc. That’s why it’s important to have a qualified accountant who can help prevent problems or spot inaccuracies at the initial stage. Therefore, you can contact CeDePe specialists who have experience in accounting for NGOs and non-profit organisations.
Impact of commercial activities on the status of an NGO
If a non-governmental organisation decides to engage in commercial activities, it may require amending its charter to meet the new goals and objectives. Otherwise, the organisation risks losing its non-profit status, which will lead to the need to pay NGO taxes and problems with controlling authorities due to non-compliance with the statutory goals. Commercial activities of an NGO require changes to the charter and documents of the organisation.
Practical tools: accounting systems for CSOs
Specialised accounting systems are used by CSOs for effective accounting. Here are the most common ones:
- MASTER:Accounting – a programme for accounting and tax control of NGOs.
- M.E.Doc – a service for submitting reports to the controlling authorities
- Electronic Taxpayer Account – for interacting with tax authorities.
- Vchasno – a platform for exchanging electronic documents.
If you are building an accounting system for the first time, you may encounter some difficulties in implementation, including
- Adjusting programmes to the specifics of the NGO and grant funding.
- Training staff to work in the new system and automate processes.
- Resolving issues of access to the system for different team members.
- Adapting to software updates.
To simplify this process a little, it is advisable to involve CeDePe specialists who will help you set up the work and improve overall efficiency.
Thus, accounting for an NGO is not only about compliance with regulatory requirements, but also about transparent, effective financial management. Using the right approaches to accounting, systematic control and automation of processes helps to avoid risks and maintain the trust of donors and partners.
