There’s a saying by entrepreneur Peter Baskerville that goes, ‘The ignorant are ignorant of their ignorance.’
It sums up traditional charities and not-for-profit expense management in a nutshell. Unfortunately, many Directors or Trustees of charities stick to their old methods of tracking expenses not because they want to, but because they simply are unaware that a better way exists.
Most charities would be familiar with using these usual methods in managing day to day expenses, but unfortunately they make all financial record keeping obligations (under the ACNC guidelines) harder than they need to be.
Let's look at some of the usual way of managing expenses for charities and not-for-profits.
- Petty Cash
This is by far the most common day-to-day expense method in charities. Responsible persons within a charity will use the charity’s pre-existing cash fund for small purchases and produce the relevant receipts after purchase. For example, it could be an unexpected “Woolies run” where employees or volunteers might need to grab some groceries.
While this seems straightforward, employees or volunteers are limited to smaller purchases, and there’s also the endless manual work in reconciling the purchases. These transactions also need to be documented for record-keeping purposes under the ACNC guidelines.
- Cash Advances
Sometimes the employees or volunteers are given cash in advance and the expenses must be accounted for after the transaction occurs. Besides the tedious work of reconciling the exact transaction amount, employees are often dealt with either a surplus which they will have to return to the charity, or a shortage in cash advance which they will have to pay out-of-pocket.
- Employee Reimbursement
Perhaps one of the worst ways of handling expense management - employees or volunteers would have to pay for charity expenses using their own money and be reimbursed for it later. Not only is it frustrating for staff to use their own money, but it’s also prone to loss of receipts and unnecessary manual work in submitting claims.
- Corporate or Business cards
Employees use corporate or business cards for charity-related expenses and do not have to claim or use their own money. While this may seem like the ‘gold standard’ in expense management, it really isn’t. Charity’s will need to have the correct legal structure and need to meet revenue requirements to qualify for corporate credit cards, and business cards do not give much budgeting control to the charity. Plus, banks will only provide a limited number of cards, resulting in a messy, not to mention “against-bank-policy” card-sharing system for many charities.
Sticking to what we know may seem harmless; after all, why fix what’s not broken? But if you could implement a better system, where all purchases came out of pre-allocated budgets and those same purchases were categorised and reconciled back against those same budgets, without lifting a finger - you’d probably want to know more, right? This is the new gold standard in meeting the ACNC guidelines for keeping financial records in your charity.
Things to Consider About Your Charity’s Expense Management Process.
Process and Efficiency
The traditional ways of managing and documenting charity expenses can be like fire-fighting. They are highly prone to error, i.e. losing receipts, reaching the charity’s credit limit, and wrongly keying in costs on the charity ledger. As a result, Responsible Persons are often trying to right wrongs and put out fires instead of improving the pursuit of its charitable purpose outlined with the ACNC. Let’s face it, no one joins a charity to fill out paperwork.
Isn’t this process unnecessary? You bet. 56% of companies report that their most significant pain point in expense management is losing expense receipts. An expense management process is supposed to be efficient, safe, and doesn’t require much effort to put in place. A charity would know better than most how much work goes into this expense tracking and how important it is for accuracy especially when it’s time to submit their audited financial report.
Indirect Costs
There’s a reason why automation is becoming so popular in running a charity. There's so much that needs to be tracked for transparency and accountability purposes under ACNC guidelines. Your day-to-day expenses are the backbone of what you need to be tracking for financial transparency. Besides saving time, it also saves your charity money, and it costs less than you think. Most businesses that embraced finance automation have managed to save almost 70% of finance operation costs, and charities are no different.
Indirect costs usually include the cost of inefficiencies stemming from loss of receipts, loss of time spent on manual work, and loss of money from expense fraud. In fact, only 27% of businesses have systems in place to flag out-of-company expenses, which gives way to a multitude of expense fraud from employees. That number is even less in the not-for-profit space.
Staff Workload
Most charities are hesitant to automate because they believe that their employees and volunteers might not welcome the change.
In Australian businesses, current statistics show that 26% of finance teams feel overburdened with manual work, and 97% of employees believe that automation can help their organisation. Financial tracking and reporting is even more burdensome within a charity. Automating this process can allow your charity to spend more money on achieving your charitable purpose.
Expense Management - Doing More with Less
For charities meeting ACNC guidelines, the right expense management and tracking system should be able to achieve the following goals:
- Eliminate all expenses paperwork
- Capture receipts so that they never get lost
- Reconcile all transactions with banks
- Set and allocate budgets
- Easily track where money is being spent
- Synchronise with accounting software
- Eliminate hours of manual tasks and no firefighting involved
A prepaid corporate card does that and more. For example, Budgetly’s software and prepaid corporate cards for charities automatically reconciles the transaction as it happens, eliminating the need for manual accounting of expenses. Besides that, the Budgetly app also allows employees or volunteers to capture and store receipts for each transaction, ensuring that receipts are never lost again.
By simply making small changes to the way expenses are handled, charities would immediately see its positive effects on processes, costs, and employee morale. Some things may not be broken, but it doesn’t mean that they can’t be improved.
To learn more about Budgetly and how we can automate your charity expenses, download our eBook, Managing Expenses with Budgetly. Or schedule a demo with us today.
