Visibility of funds and grants spending is holding finance teams back

Research shows that only a fifth of UK finance decision-makers have visibility on where money from funds and grants is spent.

Is now the time for NFPs to take digital finance transformation seriously?

There’s no escaping the fact that not-for-profit organisations are struggling to retain funding during the cost-of-living crisis, as shown by the Benefact Group’s value of giving report for 2022, highlighting that UK charitable donations totalled £4.3bn in 2022, compared with £9.3bn in 2021.

A real challenge for their finance managers is to ensure every single fundraising stream is maximised for their organisation.

There are various funding streams not-for-profit organisations rely upon to support their operations and pursue their missions, such as funds and grants.

From a financial management standpoint, through the tracking of spending from funds and grants, decision-makers can assess the performance of different projects, or initiatives. They can identify which are achieving the set objectives effectively and which ones may need adjustments or additional support.

Visibility is key

Having visibility of funds and grants spending is also fundamental to the responsible and effective operation of not-for-profit organisations. It ensures that resources used are done so in accordance with the organisation’s mission, vision, donor intentions and legal requirements.

It enables accurate performance assessment, allowing organisations to refine strategies and allocate resources efficiently. Transparency also acts as a deterrent against mismanagement or fraud, safeguarding the reputation of the organisation.

Accounting for fit-for-purpose software

Encouraging a culture of fiscal responsibility and ethical conduct within the organisation, full visibility over funds and grants spending enhances the impact and credibility of not-for-profit organisations – driving positive change in the communities they serve.

It is also essential that the accounting software used is up to the task.

Worryingly, our recent independent research exploring how 1,000 UK-based finance decision-makers working in organisations that employ between 50 and 500 employees plan, manage and deliver the finance function reveals that almost half (49%) would like to have visibility of where money from funds and grants is spent – in fact, only a fifth currently have this view (21%).

Having sight of where money from funds and grants is spent empowers finance decision-makers to make informed choices, as well as ensuring compliance and accountability – it supports effective financial management for the organisation’s success.

Transparency is key

Unfortunately, many UK finance decision-makers don’t have enough control, or real-time awareness over their fiscal activities. As a result, teams may, with good intentions, spend impulsively, without understanding the consequences this has on the organisation’s financial situation.

Many funds and grants come with specific restrictions. UK finance decision-makers need visibility to ensure that these funds are used appropriately and that the company is in compliance with all the relevant rules and regulations.

Transparency in spending helps demonstrate accountability to donors, regulatory bodies, and other stakeholders. It is essential that as part of organisations’ digital finance transformation journeys, selecting the most appropriate finance software is a key consideration.

Here’s what Darren Tiffney, Director of Finance and Central Services for Yorkshire Wildlife Trust, which has income from more than 100 funders to track at any one time said about how our software is helping them to track spending from funds and grants:

“We have our general, unrestricted income and expenditure, and then lots of individual restricted funding pots. Often grants, donations and legacies are given for one of those specific projects. For example, legacies are often given for land purchase, and the money might be restricted to buying land in East Riding, or the North York Moors.

Previously, staff used to put funds into huge baskets labelled restricted and unrestricted – which meant we had to do an awful lot of work in spreadsheets to allocate the money to the right funds. Now, we use iplicit’s ‘project costing’ features so pots can be restricted and coded in the system, where they’re easily tracked and reported.”

The wider issue  

Our research also revealed that two-thirds of UK finance decision-makers (66%) would be willing to switch accounting software providers if they can achieve a return on investment from digital finance transformation in under 12 months.

For the vast majority of UK organisations, their current accounting software is failing to support their day-to-day operation, so is it any wonder that two-thirds of UK finance decision-makers would consider changing accounting software providers if they can achieve a return on investment in under 12 months?