Tracking Donations and Grants: What Bookkeepers Need to Know
For nonprofit bookkeepers, managing donations and grants goes beyond simply recording income. Proper tracking ensures compliance, transparency, and the ability to demonstrate the impact of funding. Whether dealing with unrestricted gifts or grants with specific conditions, here’s what bookkeepers need to know to stay on top of donations and grants.
1. Understand the Types of Donations and Grants
Different types of contributions require distinct tracking methods.
Common Types:
Unrestricted Donations: Funds that can be used for any purpose aligned with the organization’s mission.
Restricted Donations: Contributions designated for specific purposes or programs.
Grants: Often come with reporting requirements and restrictions based on usage.
Pro Tip: Clearly document the purpose and conditions of each donation or grant at the time it’s received.
2. Set Up Fund Accounting
Fund accounting helps track income and expenses by fund, making it easier to manage restrictions and reporting.
How to Implement Fund Accounting:
Create unique fund codes for restricted donations and grants in your accounting software.
Use separate income accounts for restricted and unrestricted funds.
Track expenses against specific funds to ensure compliance.
Recommended Tools: QuickBooks Online, Xero, or Sage Intacct.
3. Record Donations and Grants Accurately
Proper recording ensures your financial reports are accurate and transparent.
Best Practices for Recording:
Unrestricted Donations: Record as general revenue.
Restricted Donations: Use a dedicated income account tied to the restriction.
Grants: Record based on grant agreements, including deferred revenue if applicable.
Pro Tip: Include donor or grantor details and any conditions in your records for easy reference.
4. Track and Allocate Expenses to Funds
Every dollar spent from restricted funds or grants should align with the donor’s or grantor’s intent.
How to Allocate Expenses:
Categorize expenses by program or restriction in your chart of accounts.
Use project codes or tags to link expenses directly to the appropriate fund.
Review expenses regularly to ensure compliance with restrictions.
Pro Tip: Use time-tracking tools for staff hours allocated to specific grants or programs.
5. Monitor Deadlines and Reporting Requirements
Grants often come with strict deadlines for spending and reporting.
How to Stay Compliant:
Use a calendar or project management tool to track deadlines.
Maintain detailed records of expenses tied to grants.
Prepare reports in advance to avoid last-minute errors or omissions.
Pro Tip: Assign a team member to oversee compliance and reporting for each grant.
6. Reconcile Monthly
Regular reconciliation ensures your books reflect the true status of funds.
What to Reconcile:
Donations and grants recorded in your books against donor and grantor records.
Expenses charged to restricted funds or grants.
Fund balances to ensure no overspending.
Pro Tip: Schedule monthly reconciliations to catch and address discrepancies early.
7. Report with Transparency
Donors and grantors value clear, detailed reports on how their contributions were used.
What to Include in Reports:
Total funds received and how they were spent.
Impact of the funding on programs or initiatives.
Remaining balances, if applicable.
Pro Tip: Use visuals like charts or graphs to make reports easier to understand.
8. Train Staff on Fund Tracking
Everyone involved in managing funds should understand how donations and grants are tracked.
Key Training Topics:
How to code transactions for restricted and unrestricted funds.
Importance of documenting expenses and approvals.
Reporting requirements for different funding sources.
Pro Tip: Provide a quick-reference guide to ensure consistency across the team.
Final Thoughts
Accurate tracking of donations and grants is essential for compliance, transparency, and donor trust. By implementing fund accounting, monitoring expenses, and maintaining clear records, bookkeepers can play a key role in ensuring the financial health and success of a nonprofit.
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