How nonprofits can benefit from modernising their expense management processes

A non-profit organisation has a special set of financial circumstances to consider: Every pound spent may be viewed through the prism of public trust and charitable impact. These groups aren't just maximising shareholder value or profits, but demonstrating accountability to donors, communities, regulators, and board members. In other words, they can expect a much higher level of scrutiny over how they spend money and how they operate compared to a standard business.

This level of scrutiny permeates every organisational level, including expense management. To maintain credibility, nonprofits must ensure that expense management is governed by a spirit of transparency, along with sound decision-making. Donors often require detailed reports on how contributions are being utilised, and oversight from regulators typically comes with stringent requirements. Without transparent expense tracking and reporting, you can fall victim to serious financial and reputational harm.

So how should today's non-profits respond to these urgent challenges? The most impactful step one can take is implementing automated expense management processes that replace outdated manual efforts. Utilising an advanced, AI-powered expense management platform elevates transparency to a significantly higher level, helping to demonstrate financial accountability. They also greatly reduce administrative burdens, an important consideration for non-profits, many of which must operate in a lean and agile way that minimises overhead and maximises the real-world impact of donations.

The importance of expense management for nonprofits

As we mentioned, nonprofits rely on public trust and must be responsible stewards of the donations they receive. Smart expense management plays a critical role in maintaining that public trust.

Today's donors expect the highest level of transparency regarding how their money is spent. They want programme expenses, admin costs, and the direct impact of their donations to be clearly delineated and tracked. The ability to produce comprehensive reports showing how funds are allocated is essential for continued fundraising success. If your non-profit can show low admin overhead and high direct impact ratios, this bodes well for foundation grants and major donations. To create these reports, you need an expense management system that can categorise costs and generate detailed data showing how money is spent.

Compliance is another area of utmost importance for non-profits, which face complex requirements that depend on factors such as size, scope, revenue and jurisdiction. Often, precise expense categorisation and documentation are required by tax authorities, and grants may come with their own requirements for reporting and expense tracking. If you don't meet these regulations, you can lose tax-exempt status and face penalties and sanctions. Manual expense management invites errors and inconsistencies, as people must remember sets of (sometimes conflicting) policies and rules regarding expenses. This, in turn, creates a higher level of compliance risk for non-profits.

Non-profit boards also have a role to play, reviewing expense patterns, monitoring spending and more. These boards require detailed financial records, ideally presented in a clear and concise report. A modern expense management system can create these reports and provide boards with the data they need to govern, while also providing those boards with a high degree of confidence that the data is accurate and comprehensive. This means boards can make more informed decisions about strategic planning, policy changes, budget approvals, etc., while also ensuring compliance requirements are met.

It's also common for nonprofits to juggle multiple funding sources, each with its own restrictions on how funds can be used. A grant may come with specific requirements for reporting, documenting and tracking, and nonprofits need to demonstrate that they are using these funds for their approved reasons. If you're using paper-based manual tracking processes, it's extremely challenging to manage multiple grants at once, and you run the risk of misusing restricted funds. This can lead to grant termination or loss of trust with funding partners.

Other challenges nonprofits face

Non-profit organisations have very specific challenges that aren't necessarily shared with other types of organisations, and these challenges can make expense management an even bigger priority. Let's walk through them quickly.

Many nonprofits have limited resources and staffing shortfalls. Workers wear a variety of hats and have a portfolio of diverse responsibilities. The finance team may be stretched and lack expertise in managing expense systems. Some non-profits are slower to modernise because the upfront cost seems prohibitive. This leads to a cycle where they become increasingly shorthanded and resource-constrained, as they struggle with slow manual processes that have long been automated elsewhere.

Dealing with a complex web of funding sources is also a headache for expense tracking and reporting. One grant may have allowable cost guidelines, another may restrict spending to specific areas or even geographic regions, and individual donors may have their own rules for their contributions. Tracking all of this manually can be a massive task, and categorisation errors are common with such complexity.

Nonprofits may have variable spending patterns based on seasonal activities or programme cycles, which can make budgeting for nonprofit expenses and managing cash flow difficult. Manual expense tracking lacks the real-time visibility to help manage such fluctuations.

Finally, nonprofit volunteer and board member expenses must be tracked, and these individuals may be unfamiliar with all expense policies, making proper documentation and compliance exceedingly difficult to maintain. Delays, errors, and compliance risk come from this unfamiliarity.

How to modernise your nonprofit's expense management

While the aforementioned challenges present serious and ongoing risks, there is a way forward. You start with clear expense policies and training and you adopt the right supporting technology.

Automated expense management solutions such as those offered by SAP Concur are especially valuable to non-profits because they are cloud-based and mitigate upfront technology costs while providing enterprise-grade functionality. They integrate easily and scale with your organisation, making them a good fit regardless of the size of your operation.

Most importantly, these solutions utilise automation to address all the problems we have discussed. Instead of dealing with complex webs of categorisations and grants and donors with their own detailed requirements, all of that is effortlessly automated. The risk of errors and non-compliance drops dramatically.

These solutions also save a significant amount of time, as manual expense submissions and approvals now occur automatically. Employees, board members, and volunteers can now submit expenses with a mobile device, rather than a receipt. An intuitive user interface ensures that expense processes are easily understandable, regardless of how technical your team may be. Stretched-thin workers are now freed up to work on other tasks.

Advanced reporting capabilities also enable nonprofits to effectively demonstrate their value. They can show exactly where all funds are going, and make the case that they are transparently serving the public and maximising real-world impact. Detailed audit trails ensure that all documentation is complete and ready for donor requests or tax authorities.

The takeaway

If your nonprofit is seeking to maximise its mission impact while maintaining the highest possible level of transparency and accountability, SAP Concur can help. Our tools can transform expense management from a burden to a strategic advantage that builds trust. For more information, get to know SAP Concur.