April 21, 2023|
Donations are critical to keeping nonprofit organizations operational so they achieve their mission. However, tracking donations can be challenging as your organization grows and compliance requirements increase. This article summarizes some best practices for tracking donations and how technology helps streamline the process.
Let’s first identify some of the challenges nonprofit managers face when tracking donations:
Nonprofits receive donations from various sources, including:
Tracking donations from different sources can be time-consuming and resource-intensive. Modern fundraising management software can help organize where your donations come from to simplify tracking and maintain compliance.
Technology has made giving easier through the Internet, however donations now come in many forms, including:
Different donation types often require a different accounting procedure when recording and reporting the transaction. This is required in order to stay compliant with regulations and conform to Generally Accepted Accounting Principles (GAAP).
Donors expect accountability and transparency to ensure their contributions are being used appropriately. As a result, nonprofits must maintain strong donor relationships by demonstrating that funds are being distributed in an efficient and effective way.
Managing donor information can be challenging without an effective membership management system that collects and maintains data. Cross-referencing donor transactions with user data is additionally time and resource-intensive - especially without integrations that sync different software systems.
In order to stay compliant, most nonprofit organizations must comply with specific rules and regulations. These can include registering with state agencies, adhering to data privacy rules, and reporting fundraising activities. Compliance management is especially complex for larger organizations operating in multiple jurisdictions.
Donations must be tracked and processed differently from other nonprofit funding sources such as grants, membership fees, sales revenue, and fundraising events. Since donations are given voluntarily without the receipt of a product or service, they are subjected to different accounting rules.
In order to qualify as a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code, the Internal Revenue Service (IRS) requires that nonprofit organizations fulfill the following requirements:
Following the above criteria is required if nonprofit organizations want to receive tax-deductible donations. Failure to meet these requirements may result in losing the tax-exempt status and incurring penalties and fines.
Restricted donations given to a nonprofit organization typically have specific instructions restricting how funds are used. In contrast, unrestricted donations can be used freely by the organization in accordance with its mission.
Tracking restricted and unrestricted funds differs in how the money is managed and reported. Nonprofits often use unrestricted donations as general operating funds whereas restricted donations are typically allocated to specific funds in the organization's financial system.
Accounting procedures differ among organizations, however most follow standard procedures that include:
Donations are subject to special tracking rules that include:
Unlike income from sales or membership fees, most donations received by nonprofits are not subject to taxes.
Some donations come with restrictions or conditions imposed by the donor or law. As a result, the money is typically assigned to a fund prior to disbursement. In contrast, unrestricted donations are typically reported when received and often disbursed where required.
Nonprofit organizations are required to keep donation records that include the date, amount, and donor information. Managers additionally must record any restrictions or conditions attached to the donation if applicable.
Unlike other types of revenue, nonprofits are required to provide written acknowledgment for donations received, including information about the organization’s tax status.
Technology can streamline donation tracking in several ways:
Platforms like Stripe and Paypal offer online donation forms and secure payment processing in exchange for a debit and credit card processing fee per transaction. Many of these platforms additionally integrate with software systems when sending data to minimize errors and reduce the need for manual data entry.
Charitable organizations are required to provide acknowledgment letters stating their tax-exempt status. Using donation software and payment processing platforms can save time by automatically generating receipts and acknowledgment letters that contain the information required to maintain compliance.
Online donation platforms like GoFundMe can be used to solicit donations, manage crowdfunding campaigns, and collect payments. Rather than charging a platform fee, most systems deduct a payment processing fee per donation.
Many nonprofits choose crowdfunding platforms because they offer tools such as fundraising thermometers, social media integrations, and sharing buttons. Most platforms additionally provide analytics and reporting capabilities that help marketing teams gauge the success of the fundraising process.
Unlike the systems of the past, modern online donation software for nonprofits integrates with accounting and marketing applications to save time and reduce costs.
Most fundraising management software systems allow you to produce reports using nonprofit financial metrics most relevant to your organization.
Donor management software such as DonorPerfect, NeonCRM, and Bloomerang, feature fundraising tools that track donations and manage donor data. Other systems, such as iMIS, offer comprehensive donation tracking features along with tools to raise funds, publish website content, create email campaigns, and more.
iMIS is a leading association management system used by nonprofit organizations throughout the world. Nonprofits choose iMIS because it provides a wide range of features, including:
iMIS additionally unlocks more functionality when integrated with other systems, such as memberSYNC.
iMIS is an all-in-one solution for nonprofits that provides all the features needed on a unified interface. Besides streamlining processes, iMIS helps reduce data entry, minimizes repetitive tasks, improves accuracy, and leverages the power of automation to improve productivity.
Every organization is different. That’s why you need software with extensive customization options that enable you to tailor the system to the needs of your team.
iMIS allows you to create custom reports, personalize dashboards, and create unique data fields. As a result, your organization saves time, reduces costs, and can allocate resources to initiatives that increase value to stakeholders.
iMIS integrates leading nonprofit software applications, such as Sage Intacct, TopClass, VoterVoice, and more.
Integrated software opens up new worlds of functionality, allowing data to flow between departments to enhance decision-making and improve collaboration. Everything simply works better, allowing teams to improve productivity with fewer resources.
iMIS can be accessed by any credentialed user on any mobile device at any connected location. Further, the software can be easily scaled as your organization grows without the need for new licenses, upgrades, or updates.
iMIS features data encryption and role-based access controls to safeguard sensitive data and keep your files secure. Backups and disaster recovery are handled by the system, ensuring your digital assets are safe from cybersecurity threats.
iMIS is so much easier to learn and use when compared to spreadsheets and disjointed legacy software systems. Users have 24/7 access to comprehensive support and training resources, including webinars, online documentation, and online support.
Integrated, intuitive fundraising software can manage donations, members, events, financial transactions, and more - all in one place.
enSYNC has helped hundreds of nonprofits leverage technology to maximize their impact for over 25 years. Contact us to schedule a free assessment to learn more about how integrated software can transform your organization, unite your team, and ultimately power your mission.
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