Sources of Funding

Nonprofits can and do utilize the following sources of income to help them fulfill their missions:
  • Fees for goods and/or services
  • Individual donations and major gifts
  • Bequests
  • Corporate contributions
  • Foundation grants
  • Government grants and contracts
  • Interest from investments
  • Loans/program-related investments (PRIs)
  • Tax revenue
  • Membership dues and fees
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Nonprofits fund their programs with a basket of income streams, such as:

  • Charitable Contributions. Although the total income for nonprofits comes from an assortment of sources, of which contributions are but a part, individuals are the largest source of charitable donations for nonprofit organizations. According to Giving USA, total charitable giving in the U.S. reached more than $298.4 billion in 2011. Of that amount 73% came from individuals. The rest of the philanthropic pie is made up of grants from foundations, through bequests, and by way of corporate philanthropy.

  • Corporate Philanthropy. Corporate philanthropy has come to be a integral part of the identity of most large corporations and many smaller businesses as well. CSR (Corporate Social Responsibility) has become more important as consumers have become more likely to buy from socially responsible companies.Corporate funding can be a long-term commitment to certain causes and the charities connected to them, or corporate funding can be more episodic and market driven, revolving around particular campaigns, events, and projects. 
  • Federal, State and Local Goverments. Many nonprofit institutions benefit from all levels of government. Obvious examples are public education, higher education, and the public media. Federal, state, and local goverment grants fund many programs provided by nonprofits, especially in areas such as urban human service nonprofits, and healthcare. 
  • Grantmaking Public Charities. These organizations are a cross between a private foundation and a charity. They typically receive funding from the general public, government and private foundations. They may do public service, but primarily raise funds and provide grants to charitable nonprofits that provide direct service. You can find many such grantmaking public charities in your local area. Some are associated with an overarching national organization (the Junior League is one such example). 
  • Foundations come in various sizes and types, but their grants can be important and substantial. They can include:Corporate Foundations are private foundations, but their boards are often made up of corporate officers. Their endowment funds are separate from the corporation and they have their own professional staff. Family Faoundations receive endowments from individuals or families. Many large, iconic foundations are family foundations. 

Funding - loans and grants from the European Union
The EU provides funding in the form of loans and grants for a broad range of projects and programmes covering areas such as education, health, consumer protection, environmental protection and humanitarian aid. Funding is managed according to strict rules which help to ensure that there is tight control over how funds are used and that funds are spent in a transparent and accountable manner. EU funding is complex, since there are many different types of programmes managed by different bodies. Over 76 per cent of the EU budget is managed by the Member States. This includes the structural funds - which finance regional policy, social and training programmes, as well as agriculture (including support for farmers). 

Two main types of funding

  • Grants for specific projects, usually following a public announcement known as a 'call for proposals'. Part of the funding comes from the EU, part from other sources.
  • Public contracts to buy services, goods or works to ensure the operations of EU institutions or programmes. Contracts are awarded through calls for tenders (public procurement) and cover a range of areas: studies, technical assistance and training; consultancy, conference organisation, IT equipment purchases, etc.As a group, the 28 EU Commissioners have the ultimate political responsibility for ensuring that EU funds are spent properly. But because most EU funding is managed at country level, national governments are responsible for conducting checks and annual audits.

Beneficiaries

  • Small businesses - Can obtain EU funding through grants, loans and guarantees. Grants provide direct support, while other funding is available through programmes managed at national level.EU funding opportunities for small businesses

  • Farmers - Most farmers in the EU are eligible to receive direct payments to support their income. Farmers must respect standards related to environmental protection, animal welfare and food safety. Most support is not linked to production. But under certain conditions, EU countries may give less money and instead provide support linked to production. 

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Financial Audit of the Grant Contract

The view from the bridge 
In actuality, a financial audit most commonly refers to an independent review of an organization’s financial books. Usually conducted annually, it’s really just a part of a reliable checks-and-balances system to make sure everything is in order. 

The objective of the Financial Audit are to enable the Auditor to express an opinion on whether:
  • The Finalcial Report presents fairly, in all material respects, the actual expenditure incurred and the revenue received for the Project conformity with the applicable Contractual Conditions; and 
  • The Project funds provided by the grantor have, in all material respects been used in conformity with the applicable Contractual Conditions.

If you do determine that an audit is beneficial (or required), it’s important to know that it must be prepared by a licensed independent certified public accountant (CPA). Once engaged, an auditor performs a series of selective tests that provide a basis for judging whether the financial reports can be relied upon.

Auditors will examine, among other things, bank reconciliation, selected restricted donations (to see that they were handled and recorded properly), and grant letters (to see that receivables are accurately stated). In addition, the auditor reviews physical assets, journals, ledgers and board minutes. Based on this investigation, the auditor issues a formal opinion about the accuracy of the financial reports.

During the AICPA Not-for-Profit Industry Conference, Frank Kurre, national managing partner of Grant Thornton’s Not-for-Profit Industry Practice, and Donna O’Brien, president of Community Healthcare Strategies, offered advice for audit committees. They said the audit committee’s primary role is to instill confidence that the organization’s financial and tax status, internal controls and compliance procedures allow it to fulfill its mission and achieve long-term viability. Toward that end, there are two main guiding principles: Accountability and Independence.

The accountability is to stakeholders, to donors, to grantors, to organizations that provide financing and to people who use the resources of the organization. It’s also to society at large, which grants tax exemptions to recognize the societal value of the services the organization performs.The audit committee must be independent of both management and the external auditors. Internal auditors must be independent of management and must be able to report findings directly to the audit committee.The external auditor’s opinion on the financial statements must be based only on its independent financial judgment, without improper influence from management. Board members and management must be independent from vendors, or, at a minimum, disclosure and recusal used.

Internal Audit

Unlike a financial statement audit performed by independent external auditors, which provides only a high-level consideration of internal controls as an element of audit planning, an internal audit function focuses on the details of an organization's policies and procedures with an objective of preventing and detecting:
  1. Weaknesses in the design or operation of policies and procedures
  2. Noncompliance with policies and procedures
  3. Inefficiencies in operations
  4. Occupational fraud and abuse
However, internal auditing is not simply about finding weaknesses or noncompliance with policies and procedures. The Association of Certified Fraud Examiners 2004 Report to the Nation on Occupational Fraud and Abuse found that the median loss when fraud took place in an organization without an internal audit function was $130,000. That median loss dropped to $80,000 when an internal audit function was in place! Why? Because the frauds are detected much sooner when an internal audit function is in place. Early detection also improves an organization's chances of recovery of lost funds. 

As further evidence of the value of an internal audit function, that same 2004 study reported that internal audit as the second most likely method of detecting fraud (behind tips from employees, vendors, and customers). The study found that internal audits are more likely than an organization's internal controls, and much more likely than the external audit, to result in detection of fraud. 


Consulting-oriented internal audit services are entirely forward-looking, aiming to help your organization achieve its goals and objectives. Examples of consulting-oriented internal audit services include assistance with lease-buy decisions, facilitation of strategic planning, due diligence in connection with major purchases or acquisitions, design of new internal control structures for new programs, locations, etc, and many other services.


European Audit methodology

Verification of the total eligible costs declared 
The auditor should conduct its verification on the basis of an inquiry and analysis,(re)computation, comparison, other accuracy checks, observation, inspection of records and documents and by interviewing the beneficiary.

Nonprofit organizations serve the public using funds contributed from donors, and are exempt from paying income tax. Because of their reliance on donors and their tax benefits, nonprofits are held accountable to their donors and the federal government. There are a number of elements that an independent auditor will scrutinize in a financial audit; preparing a checklist of these items can help your organization to come out of an audit unscathed.

The auditor shall examine the following documentation:
• Grant agreement and its amendments
• The final report 

For staff costs:
  • Salary slips
  • Time sheets
  • Contracts of employment
  • Other documents (e.g. personnel accounts, social security legislation,
  • invoices, receipts etc...)
  • o Proof of payments 
For travel costs and subsistence allowances:
  • Beneficiary's internal rules on travel
  • Transport invoices and tickets
  • Declarations by the beneficiary
  • Other documents (proof of presence such as minutes of meeting,reports...)
  • o Proof of payments 
For Equipment:
  • Invoices
  • Delivery slips / certificate of first use
  • Proof of payment
  • Depreciation method of calculation 
For subcontracting:
  • The call for tender
  • Tenders (if applicable)
  • Justification for the choice of sub-contractor
  • Contracts with sub-contractors
  • Invoices
  • Declarations by the beneficiary
  • Proof of payments
  • Other documents: e.g. national rules on public tendering if applicable,Community Directives, etc.
For other cost:
  • Invoices
  • Proof of payments
  • Other relevant accounting documents

The auditor should verify that the costs declared:
  • are linked to the subject of the grant agreement and indicated in the estimated operating budget of the beneficiary attached to the grant agreement (please refer to the latest version in case of amendements); 
  • are necessary to implement the annual work programme which is the subject of the grant (cf. footnote 2); 
  • are reasonable and justified, and comply with the requirements of sound financial management, in particular regarding economy and efficiency 
  • have been incurred during the duration of the work programme, as defined in the Grant agreement (with the exception of the invoice for the audit certificate and costs related to final reports); 
  • are not covered by other EU funds; 
  • are identifiable and verifiable, inparticular being recorded in the accounting records of the beneficiary and determined according to the applicable accounting standards of the country where the beneficiary is established and according to the usual cost-accounting practices of the beneficiary; 
  • comply with the requirements of applicable tax and social legislations; 
  • are in accordance with provisions of the Grant Agreement. 
  • have been converted to euro at the rate foreseen in the Grant agreement. 

The Auditor shall verify whether expenditure includes VAT. If this is the case, the auditor should verify that the beneficiary cannot recover these taxes.The conclusion that the VAT cannot be refunded to the beneficiary shall only be accepted if supported by a statement from the competent national authority.

 
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Invoices

Srike the wall
Non Profit Organization - An invoice is normally evidence of a contract. Simply put, a contract is an agreement between two individuals or entities. A contract may be oral or written. An invoice is a document demonstrating the amount owed under the terms of the contract. However, if an invoice has language contituting a contract (or an agreement), it may also be deemed a contract.

Invoices and claims can be claimed on:
  • actual spend
  • a set amount per quarter (a profile payment)
  • a set percentage of the award on either the actual cost or budgeted amounts
  • the work packages completed, for example patient numbers for clinical trials
Invoices and claims are usually set up at the start of the award and are sent to sponsors either quarterly or annually. These are called interim claims and they are sent out to the sponsor, usually without consultation with departments.

However you may be contacted if:
  • spending has not started on your grant and the claim date is due
  • there is an overspend on your account and you cannot claim all the items spent
  • goods or services have been purchased and we need to check they are within the terms and conditions of the award
When research finance are about to process the final invoice or claim, ie the last one before the grant finishes, we will need final approval from the Principle Investigator / Administrator that all expenditure has been incurred.

The Grant Accounting Office's (GAO) role in the management of subawards is focused on the approval process prior to finalization of the subaward agreement and the review of the interim and final invoices for agreement compliance after the final agreement is signed.

All claims in respect of Actual Costs must be supported by fully receipted original invoices, providing the following details:
  • Supplier's name, address and VAT Registration Number (where appropriate)
  • Claimant's name and address, i.e. the business name in the approved RDC contract who is the scheme beneficiary
  • Detailed description of services provided or goods supplied, separately costed, to include serial numbers for any equipment purchased
  • Date on which the services or goods were supplied
  • Total amount due for payment by the customer with the VAT element clearly detailed
  • Amount paid with details of any discount awarded which fully explains any difference between the amount due and the amount paid
  • Date paid
  • Method of payment e.g. cheque, debit card, etc
  • Business stamp or Signature of person receiving payment on behalf of the Supplier
In addition, when you submit a fully receipted original invoice you must also back it up with other evidence of payment, such as:
  • The original cleared cheque
  • The original bank or credit card statement
  • The original bank giro credit transfer slip
  • An Accountant's report
  • A certified extract from the Business accounts

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Financial in Non Profit Organization

Fishing
Every nonprofit organization’s financial statements produced for external use should include four parts:
  1. A balance sheet (sometimes called a statement of financial position),
  2. An activities statement (sometimes called support, revenue, expenses and changes in net assets),
  3. A cash flow statement, and
  4. Explanatory footnotes.
Generally accepted accounting principles (GAAP), in Statement of Financial Accounting Standards No. 117, Financial Statement of Not-for-Profit Organizations (SFAS 117) issued by the FASB, requires that (in most cases) expenses of not-for-profit organizations be reported in three categories of activities: program, management and general, and fundraising (or, for a membership organization, membership development).

Other key aspects of interest to nonprofits are outlined by the Financial Accounting Standards Board (FASB), a nonprofit organization authorized by the Securities and Exchange Commission to set accounting standards in the United States. Of particular importance is the FASB’s Statement of Financial Accounting Standards No.116, which defines:
  • Revenue in the form of contributions: These standards establish how and when to recognize that revenue has been earned. They include standards for the accounting treatment of unrestricted and restricted funds, donated goods, in-kind contributions, pledges and the like.
  • Value of donated services: This establishes standards for when it is necessary to record donated services (i.e., volunteer time) in the organization’s financial statements. According to the FASB, services to be recognized include those that “(a) create or enhance nonfinancial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.”

Tax Exemption

For-profit organizations must pay taxes on their net income, but this is not true for nonprofits if they are exempt from taxes. If a nonprofit's goal is to increase the welfare of society, governments tend to help this cause by minimizing the nonprofit's costs as much as possible. It is these differences between the two types of organizations that have an impact on each type's accounting methods.


Grant

Government grants are a common method for non-for-profit (NFP) organizations to obtain funding. Typically, these grants originate with the NFP submitting a proposal, to a governmental agency for specific funding. This proposal will often include a detail budget of how the grant funds are to be spent. As such, it is important that the NFP properly track and report its expenditures to ensure compliance with the grant agreement.

Many government grants also contain specific requirements the recipient must follow in order to fully comply with the grant. Although these requirements can cover a wide range a common requirement is the matching clause. This clause requires the NFP to contribute/raise a certain level of funds to the project. These funds can come from any source, other than another government grant.  
Audit Process

There are essentially three stages to every audit – planning/pre-fieldwork, fieldwork, and post-fieldwork/wrap-up. In order for an audit to run smoothly and efficiently, all three phases need to be executed well.
It is inappropriate to prepare income statement for a non-profit organization since non-profit organizations don’t exist to make profit. Therefore, non-profit organizations prepare income and expenditure account as a substitute of income statement
The amount of total Revenues greater than the amount the total expenses of a non-profit organization is referred to as surplus (not net profit). Surplus is not distributed among the members of non-profit organization rather than it is kept for growth and expansion of the organization for example, non-profit organizations use surplus to buy fixed assets such as building for the club, land, equipments etc. - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
It is inappropriate to prepare income statement for a non-profit organization since non-profit organizations don’t exist to make profit. Therefore, non-profit organizations prepare income and expenditure account as a substitute of income statement
The amount of total Revenues greater than the amount the total expenses of a non-profit organization is referred to as surplus (not net profit). Surplus is not distributed among the members of non-profit organization rather than it is kept for growth and expansion of the organization for example, non-profit organizations use surplus to buy fixed assets such as building for the club, land, equipments etc. - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
e main purpose of business entities is to make profit as much as possible for the owner(s), whereas the non- profit organizations are established not to make profit but for the well-being of their members, society or general public - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
Characteristics
 Profit-Oriented OrganizationsNon-Profit Organizations
Main purpose is to make profit

Main purpose is Not to make profit
Sole proprietorship: Owned by a single owner
Partnership: Owned by partners
Company: Owned by the shareholders


No one ow - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
Difference between non-profit organizations and profit oriented organizations - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf

The main purpose of business entities is to make profit as much as possible for the owner(s), whereas the non- profit organizations are established not to make profit but for the well-being of their members, society or general public - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
Characteristics
 Profit-Oriented OrganizationsNon-Profit Organizations
Main purpose is to make profit

Main purpose is Not to make profit
Sole proprietorship: Owned by a single owner
Partnership: Owned by partners
Company: Owned by the shareholders


No one owns a non-profit organization
Profit is distributed to shareholders or owner(s)
 Not distributed but kept for growth and expansion of the organization

Main revenue source = Rendering services or selling goods

Main revenue source = Membership subscription

Tax is generally charged on net income
 Tax Exemption in many countries - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf

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