If you’ve been working in the nonprofit sector for a while, you probably know that nonprofit finance and fundraising teams often get frustrated with one another. While they both share the common goal of funding the organization’s various projects and programs, these two departments often feel disconnected from one another and struggle to align.
NonprofitPro cites a study claiming that 54% of fundraisers and 45% of finance respondents describe their work relationships with one another as “somewhat collaborative” or “not collaborative at all.” This shows that there is often room for improvement between these two departments at the average nonprofit.
In an ideal world, these two departments would work together regularly, understanding how they can support each other because they share many goals and objectives. However, due to the nature of nonprofit accounting and the perspective of fundraisers, these two teams fail to communicate and disagree with one another in reporting.
In this guide, we’ll discuss three strategies that nonprofit accounting and fundraising teams can use to help fund your mission and achieve growth.
- Integrate software solutions.
- Understand how reporting differs.
- Collaborate on your budget and goals.
1. Integrate software solutions.
Accounting teams often wish to communicate more frequently with the fundraising team. They want to have information about revenue generation as quickly as possible to update accounting documents and ensure the organization is on track.
Integrating your fundraising and accounting software solutions enables both teams to receive the information they need to operate in real-time.
Both your accounting and fundraising software are at the core of your organization’s technology strategy. Therefore, it makes sense to start with these solutions when examining potential opportunities to integrate and ensure information flows correctly between them.
When you integrate these systems, you’ll need to make sure everything maps correctly. Due to the generally accepted accounting practices (GAAP), the titles used to describe the revenue and expense fields may differ from those of the development team. Therefore, you’ll need to confirm that all fields map correctly between the systems to ensure your general ledger and chart of accounts are correct.
Integrating software to ensure both the fundraising and accounting departments are working with the same numbers is the first step to helping them work effectively together.
2. Understand how reporting differs.
Imagine that your nonprofit has had an incredibly successful fundraising season. You’ve raised additional major gifts, hosted a successful pledge drive, and even won two new grants! It’s now time to bring these accomplishments to your executive director so that they can present the impressive results to the board.
In this meeting, both the development and financial directors will provide insights about revenue generation and discuss how the organization can leverage those funds. However, after the development director presents their impressive results, the financial director presents results with different figures.
The executive director doesn’t know who’s right and can’t make any decisions until they know which numbers to work with. Was this a result of poor financial management?
More than likely, both teams were right. But because they record and report finances differently, each team ended up with a different result. If they better understand these differences and the requirements of the Financial Accounting Standards Board (FASB) and GAAP guidelines, these teams could explain the discrepancies to the executive director and prevent frustration from all parties.
You may find that reporting discrepancies occur between your fundraising and financial statements when it comes to pledge drives, grants, restricted gifts, capital campaigns, and in-kind donations.
Pledge drives are frequently used by nonprofit organizations that encounter hardships and need to raise money quickly and efficiently. You’ve likely seen these types of campaigns arise in response to hurricanes, tornados, and other natural disasters. However, these campaigns don’t need to be tied to disaster; nonprofits can leverage pledge campaigns to raise money for any purpose.
Here’s the general difference between fundraising for pledges versus traditional donations:
- Fundraising pledges are a promised support of pledged funding to be paid and processed in the future. While these contributions can be made in cash, most of these gifts are processed online. Pledge campaigns must be carefully developed with specific timeframes and conditions.
- Traditional donations are accepted immediately across the entire duration of a fundraising campaign. They’re made in cash, in-kind contributions, and online payments.
Therefore, the main difference between these gifts is the timing of when they’re paid out. This difference in timing also impacts the way they’re recorded in the system.
Fundraising teams don’t record the pledge as revenue until the money enters their system. However, in accordance with GAAP principles, accounting teams must record the entire pledge as revenue as soon as the pledge is made.
Consider, for example, a supporter who pledges a donation of $3,000 for your campaign. However, they want to pay it out in two installments of $1,500. After the first installment is paid, the fundraising team would record the $1,500 as revenue. Meanwhile, accountants would immediately record all $3,000 as revenue in the accounts receivable as soon as the pledge is made.
Many organizations rely heavily on revenue from grants to grow their impact and fund numerous programs. However, there are several types of grants and different reporting standards for each one.
For fundraising teams, there are two different ways grants may be recorded. They may be recorded at the time the funds are received, or if your organization incurs expenses and is reimbursed by the grant funder, they’re recorded when the funds are reimbursed.
Meanwhile, accounting teams have a few more requirements about recording grants depending on the type of grant they receive. The following image summarizes how accountants record grant monies:
Unconditional grants are rare, but they’re not unheard of. Your organization may be provided an unconditional grant from a government entity or a foundation. In this case, these grants are recorded by your accounting team as soon as your organization receives an award letter. When grants have contingencies and installments, accounting departments wait to record the funds until the installments are awarded. And finally, reimbursable grants are recorded when the organization receives the funds, just as fundraising teams record them.
One of the reasons nonprofits leverage fund accounting to record their revenue and expenses is restrictions are sometimes placed on the various donations contributed.
Supporters giving the largest donations to your cause often want to know how you’ll use those funds before they contribute them. Therefore, they place restrictions on the funds, requiring that your organization use them for specific purposes.
Essentially, restricted revenue is used to fund specific programs at your organization, while unrestricted revenue is used to grow your organization’s overall growth. Each department thinks about these funds in a slightly different way.
- Fundraisers primarily focus their attention and efforts on how much they can raise over a specific period to fund the nonprofit’s operations and specific programs. They keep an eye on donors’ intentions and motivations, ensuring they maximize the gifts they receive in total.
- Accountants are generally more concerned about the dollars necessary to fund specific programs than maximizing the total donation amount. They sort out what restrictions have been placed on various programs and how to make the most of the funds.
Consider, for example, if Program A at your organization needs $150,000 to be successful. Meanwhile, Program B requires $100,000 to be successful. However, many supporters seem interested in helping Program A, so you raise $200,000 for that program and only $50,000 for Program B. While the total of $250,000 is the correct amount necessary to raise for these two programs, the allocations would leave Program B in a challenging situation and Program A with too much funding.
Understanding how each team views revenue and restrictions will help the two teams work together to develop specific goals and objectives to ensure all programs have the necessary funding to succeed.
Both fundraisers and accountants care about properly recording in-kind donations. These contributions should have an estimate associated with them, helping determine how much each in-kind contribution is worth.
Jitasa’s in-kind donation guide explains that donations can be goods or services. Some in-kind donations, like many goods, are relatively easy to calculate. The example provided in the article is a couch that still has the tags on it. Even if the tags are missing, your organization can likely look up the donation online to find the value.
However, services donated in-kind can be more challenging to estimate. For instance, lawyer services should be estimated based on the hourly rate generally charged by the service provider and the number of hours worked.
Both fundraising and accounting teams should be aligned in their in-kind donation estimates to ensure reports from both departments match.
3. Collaborate on your budget and goals.
Accounting and fundraising teams should communicate regularly, checking in with one another and asking questions about any discrepancies they may notice. However, more than that, they should collaborate extensively at least once or twice a year to ensure their strategic plans align with one another and to create the overarching nonprofit budget.
Gather these two teams together at least twice per year to analyze the budget and goals, discuss revenue generation objectives, and ensure they align with overarching goals for the organization.
For instance, let’s say an organization needs at least $300,000 raised for the annual fund to maintain operations, but $400,000 would help achieve some growth initiatives. This would be helpful for the fundraising team to know as they search for unrestricted funds.
If the same organization needs $150,000 for Program A and $100,000 for Program B, the development team may also craft their appeals based on this need. If they hit their fundraising goal for Program A, they can shift attention to Program B.
Together, these teams can answer questions including:
- How much funding does each program need?
- What can be done with additional funds raised for those programs?
- What are the growth goals for the annual fund?
- How much funding is necessary to host effective fundraising campaigns?
These one or two opportunities to collaborate are key, but they’re not the only time these teams should communicate. Be sure to provide frequent updates and communication, keeping both teams informed and updated on the progress of the goals set together.
While there may be tension between many nonprofit fundraising and accounting programs, this can dissipate with additional communication. If you’re a part of either of these teams, conduct research to make sure you understand what the other does and keep in mind the most common times when discrepancies come up so that you can address them as they arise.
If your nonprofit doesn’t have a full-time financial team, you might decide to outsource these services. To make sure your fundraising and outsourced finance team can also stay on the same page, look for accounting teams that have nonprofit experience. This will ensure they have the language to discuss accounting-specific goals and initiatives.
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