Managing a nonprofit's finances can sometimes feel like captaining a ship where the crew spends most of their time mapping the journey instead of sailing.
A nonprofit’s primary purpose can get sidelined because key personnel are busy reporting on (often in Excel) where every penny comes from and goes.
While this is essential for both regulatory and fundraising purposes, taking the manual work and complexity out of these processes—especially when non finance staff such as program managers are involved—gives your team much-needed time back in their day to focus on the organization’s core mission.
In this blog, we’ll cover the importance of detailed financial reporting for charities and nonprofits, types of financial statements they need to produce, country-specific reporting regulations and how Vena helps with nonprofit financial planning.
We’ll highlight what key nonprofit financial reports look like, what they should include and even provide you with an Excel template to streamline your reporting efforts.
Charities receive both unrestricted and restricted funds, that is, funds that don’t and do have pre-determined rules on how they can be used. The latter are highly regulated and continually monitored — whether they come through donors, stakeholders, or bequests.
Given this inherent complexity in managing both unrestricted and restricted funds, it’s crucial for nonprofits to maintain detailed and transparent reporting to ensure judicial use of funds.
There are three reasons for this:
Nonprofits need detailed, reliable and up-to-date financial reports to apply for funding. Large organizations that actively fund charities review financial track records and spending patterns before actively supporting them.
Individuals also feel more confident contributing to charities when they can track where their money is going. In fact, give.org’s Donor Trust Report states that 64% of of all donors say trust in a charity is extremely important, yet only 20% report having a high level of trust in nonprofits.
Unfortunately, faced with resource constraints, many charities default to manual, excel-based accounting and planning processes that aren’t equipped for detailed reporting, which creates accountability gaps.
In most states, charities are legally required to maintain accurate financial records to attain the recognition of a nonprofit. Their payroll, donations and expenditures are regularly monitored to ensure that money is not being spent on internal or individual needs.
In the United States, the Internal Revenue Service (IRS) requires that the organization's purpose aligns with one of those described in Section 501(c)(3) of the Internal Revenue Code to apply for a ruling that would mean its donations are tax deductible.
It can be challenging for charities (especially smaller ones) to find time to focus on how they’re strategically allocating their resources.
For instance, before they found Vena, the finance team at WWF Canada was spending more time manually distributing data than analyzing it. “Everyone was managing their program plans with different templates, so rolling that up into a final budget for management was a big task,” said Clement Marlin, WWF Canada’s Senior Financial Specialist. “If things changed or if we needed to revisit something, we couldn’t do that in a timely fashion at all.”
The ability to produce detailed financial reports on an agile basis helps non profits assess where they’re facing cash shortages so they can plan how they'll fund particular projects, and where they'll need to raise additional funds.
Donor reports combine data on beneficiaries and funds with testimonials and case studies. They’re more illustrative than internal financial reports but also include critical information such as funding, expenditure breakdown, impact metrics and funding allocation.
Nonprofits often use donor reports as marketing and fundraising collateral.
Grants come with detailed stipulations and it’s necessary to communicate to grantors how you’re meeting those requirements via financial reports.
These types of reports can include grant allocations, grant utilizations, expenditure breakdowns, results of a project, proposed vs actual budgets and future financial goals.
These are more detailed than donor reports both in terms of specificity and compliance requirements.
Examples of grant allocation reports created with Vena.
An example of a grant utilization report created with Vena.
An example of a variance report by project created with Vena.
Nonprofits need audited financial statements, which include the balance sheet, income statement, statement of cash flows and a statement of functional expenses.
These statements are audited by independent accountants for accuracy and compliance with generally accepted accounting principles (GAAP).
Nonprofit board members require financial reports tailored to the organization's governance. These include budget vs actual reports, cash flow forecasts and specific program or project financial reports.
These reports help board members fulfill their fiduciary responsibilities by enabling them to oversee the financial health and strategic direction of the nonprofit.
In the US, most states require nonprofit corporations to file one or more reports or registrations every year. These can include corporate filings, financial reports, fundraising registrations and state tax-exemption filings. The specific requirements can vary by state, so it's important to maintain detailed financial records at every stage of a grant, so reports can be quickly compiled.
Regulations around financial reporting for nonprofits and charities will also differ based on your location.
Here are some of the basic requirements for different geographies:
According to the IRS, nonprofits in the US must produce four financial reports. These are:
Examples of granular operating expense reports created in Vena, allowing you to report on expenses by function.
According to the Government of Canada, Financial statements for charities should include at least:
For nonprofits with income over $250,000, the Charities Directorate recommends that you get your financial statements professionally audited; otherwise, the treasurer for the charity should sign them.
Financial statements are also available to the public upon request.
According to the UK Government, all charities must keep accounting records (e.g. cash books, invoices, receipts, Gift Aid records etc) for at least 6 years (or at least 3 years in the case of charitable companies).
A charitable company is registered as a company and governed by company law in addition to charity law, providing it with a separate legal identity and limited liability for its trustees. A charity, on the other hand, can have various structures and is solely regulated by charity law.
Where Gift Aid payments are received, records will need to be maintained for 6 years with details of any substantial donors. Identification of ‘tainted charity donations’ must also be provided in accordance with HMRC guidance.
The accounts of charities must be made available upon request to the public: this is important for public accountability—it is open to trustees to make a reasonable charge to cover the costs of complying with the request (e.g. photocopying and postage).
Only charities with gross income of more than £25,000 in their financial year need to have their accounts independently examined or audited, except for NHS charities.
Here are a few examples of nonprofit financial reports that are open to the public and often published online.
Source: WWF
On their website, WWF provides both their annual report (along the lines of a donor report as we described earlier) and financial audit report. The financial audit report starts out with the four financial statements necessitated by the US government—Financial Position, Activities, Functions and Cash Flow. It goes into detail in each statement and ends with notes on accounting policies.
You can find both reports here.
You can also read how WWF Canada turned 2 hours of reporting operations into a two-second, two-click job with Vena.
Source: Medecins Sans Frontieres
This report defines the MSF’s programs around the world, activities and organization, year in review, the four financial statements, treasurer’s reports and auditor’s reports. Their notes to combined financial statements include basis of reporting and sectorial information.
Side note: this report is illustrated with engaging infographics, graphs and charts.
Read the full report here.
Feeding America’s auditor report includes all four financial statements and notes to financial statements (statement of financial position, activities, functional expenses, and cashflow).
Side note: Feeding America’s webpage for reports also includes a gratitude report. This is sometimes produced as a subset of the donor’s report.
Read the full report here.
Vena for Not-for-Profit provides you with the level of granularity you need to meet grantor and government reporting requirements, giving you the ability to slice data by grant and by project, and allowing you to easily keep tabs on restricted and unrestricted funds.
With Vena, finance teams at charities can divest time from the accounting and financial reporting rigmarole and put it towards uncovering opportunities to optimize fundraising or operations.
Our pre-configured solution for nonprofits gives you access to:
An example of a Vena Insights dashboard tailored to support nonprofits in tracking their most important metrics like grant income and utlization at a glance.