Tracking Time and Expenses at Your Nonprofit

If you run a nonprofit, you're no stranger to the idea of wearing many hats at your organization — and working hard to keep a number of different processes running smoothly at any given time. But it's hard to overstate the importance of tracking time and expenses correctly at your nonprofit. Mishandling this process can have serious implications if not done correctly.

If time and expense records are not properly maintained, it could result in incorrectly paying employees, failing audits, losing out on grants, or leaving your organization open to legal issues. For all these reasons and more, it's important to have the correct processes and technologies in place.

In this blog post, we'll go over some best practices when it comes to tracking staff time and expenses at your nonprofit.

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Tracking Employee Time at Your Nonprofit

Federal law requires that employers keep and maintain time tracking records for each nonexempt employee. You may use any time tracking method you like, so long as it's accurate and consistent.

One way to track employee time is to require that they submit timesheets. This is a sufficient option, though there are a few things to take into consideration if you take this route. For example, you will need to set up a standard spreadsheet template so that staff members have a consistent place to enter start times, lunch periods, and end times each week. They will also need a place to note whenever they take paid time off or note when holidays are scheduled. Lastly, you will need to store the timesheets in a secure location such as Box, Google Drive, or SharePoint to comply with federal law.

However, this method can begin to feel a bit too "manual" if you also require additional steps, such a manager's approval of a timesheet. Approval is recommended if it's appropriate for the size of your nonprofit. Chasing staff and managers for their updated timesheets may take up a lot of time, and it can be difficult to make changes to timesheets after they've been submitted or processed. For these reasons, you may want to consider a less manual time tracking system.

An ideal time tracking system will offer multiple features that automate your tracking process. If possible, you should integrate time tracking into your payroll systems to make processing pay easier. Any HR information system (HRIS) such as Gusto (better for small organizations), ADP, or PayCom will have this capability.

Good HRIS solutions will allow you to set up workflows that alert staff to finish their timesheets and then send the completed forms to their managers automatically for approval. The systems will alert the appropriate administrators when a step was not taken. Additionally, HRIS solutions keep up with changing laws around time tracking so you don't have to. They will allow you to create reports and look at time trends for larger workforce analysis and leave a communication trail so that everyone in the process has visibility.

ClickTime also offers simplified timesheets for easy time tracking, along with reporting options to help provide grantmakers with the information they need.

Whatever you decide is the best approach for you, the most important part of time tracking is making sure that all involved parties are on the same page. Having the policies or procedures written out and reviewed during the onboarding process or in a handbook is a great way for staff members to make sure that they're going through the process correctly.

Tracking Expenses at Your Nonprofit

Just as it's important to maintain accurate records of employee time, it's vital that you track your expenses in great detail. Expenses can be categorized as one of two types:

Reimbursements to employees for out-of-pocket payments they have made during the course of doing business
Payments to service providers or vendors for services or products the organization has purchased

Some expenses are paid for by grant funds and some by internal department budgets. It is important to track where payments originate. Grant funders usually require reports on project expenses that were presented in the project budget. The grant agreement should give clear instructions on how to do this. Internal department budgets should be balanced for the overall financial health of your organization. It will prevent you from spending too much or too little and can serve as a tool for planning the next year's budgeting.

Tracking expenses can be done as simply as keeping a running list on a spreadsheet that would track information such as this:

Date of request
Who requests payment or reimbursement
What is being procured
How much is paid
Who approves the transaction
What department or grant is the source of payment

There are also software applications that provide a more sophisticated way to manage expenses, and many effective tools can be free and open-source, such as InvoiceNinja and HomeBank. You can review eight free and open-source expense management solutions here.

QuickBooks can also help your organization track expenses for grant-related work or program budgeting needs through the use of the Classes/Jobs feature. There are several integrations that can help support time tracking needs.

If expense management software is available from the company that provides your accounting software, investigate the available modules for your product. It may increase your cost slightly, but it could make coordinating expense report submission and expense reimbursement to vendors or your employees more accurate and efficient.

When you consider your approach to expense tracking, it's important to keep both your employees and the vendors you work with top of mind. To that end:

Reimburse your employees promptly according to your organization's policy. For example, expenses must be submitted each month, expenses will not be reimbursed if they are older than three months, and so on.
Pay your bills from vendors and service providers according to the instructions on their invoice or a contract for their services. For example, take note of the due date; payment information such as bank account numbers, invoice numbers, and installments; and payment frequency.

A good practice is to have an expense management policy that clearly outlines what is required and who is responsible for submission and approval of reimbursements and payments. You might consider including this policy with your employee manual, but in all cases it should be freely available to all employees, and all employees should understand what is required.