How do you account for expenses? I don’t mean, how do you book them. What I mean is, what documentation do you collect and keep to make sure (and be able to show) that the expenses are real? In other words, what is your proof of delivery?
In one of my previous blogs I mentioned the concept of proof of delivery. (And promised to write more about it later, so here goes). This is something that at the same time is very intuitive and natural, and in daily practice not that easy at all. At least, that’s what I have observed in quite a few organisations. And, obviously, experienced myself as well.
Proof of delivery – what’s easy about it
The intuitive part is that before you pay someone, you usually have a very clear idea of what you expect to get from them. And you usually do not pay a final installment if your expectations are not met. For instance, for a project workshop you need ten hotel rooms for two nights including breakfast plus a conference hall, four coffee breaks and two group lunches. You expect to get all these very tangible things. And you’ll pay the final installment only when your team have enjoyed these services.
Proof of delivery – paperwork challenges
The difficulty is, to keep a paper trail that can corroborate that these services were delivered as agreed. An invoice from the hotel might not be sufficient. (Especially if the hotel is in a country that is known for corrupt practices, an auditor may need extra assurances the invoice is not fabricated or doctored). Do you have a list of participants, with signatures confirming their presence? Or do you have pictures of the workshop, with the conference hall and the ten people whose accommodation you paid?
But maybe your workshop involves people who do sensitive work and whose identities need to be protected. So maybe you cannot take pictures of the people. Perhaps you cannot have a list of names and signatures because your participants use nicknames or false names. So how can you prove that you were there, and that the hotel delivered what you paid for?
Some solutions for paperwork challenges
You might have a trainer or expert, who writes a report about the workshop, mentioning the location. You might take pictures of the lunches and breakfasts. If you’re creative, you might find ways to take pictures without recognizable people in them. Alternatively, you might have some kind of list of people present with signatures. You might also, depending on the location, find further proof the hotel is genuine and applies the price levels of the invoice for instance through a screenshot of the website.
In all, this whole thing could be much less easy than it seems at first sight.
At the same time, it is important. Because in order to be eligible, costs need to be verifiable, reasonable and justifiable. For now, let’s look a bit more at verifiable.
Sample checklist
What is the full paper trail you need to verify an invoice? If we look at the example of a trainer you hire for a workshop, the documents you need include:
- A terms of reference document in which you have described the need. And possibly an ad for the vacancy or a message in which you invite trainers to respond. It is important to make a clear link to the approved project plan and budget here.
- A quote from the trainer in which he or she responds to the terms of reference with their approach, plan and budget outline
- Depending on your internal policy and/or requirements of the project funder: quotes from at least three trainers plus a document on the decision making to select one trainer including signatures of the team members involved in selecting
- A signed contract, referring to the terms of reference and the quote and any other issues agreed upon, where possible with a clear link to the project plan
- The agreed outputs as per contract. Such as, for instance a narrative report, recommendations, photos, a time sheet, participants’ evaluation forms, etc. from the trainer to prove the service was delivered as agreed
- The invoice with a clear reference to the contract and agreed outputs and outcomes. Plus any underlying documentation as above signed by the person or persons authorised to sign off. All of this, preferably accompanied by a message from the project team member who hired the trainer that the service delivery has been verified and approved
(In a later blog I will explain how the wording of the terms of reference and the contract is quite crucial to make a clear link to the project plan and budget as approved by the donor, which is needed to be able to justify the expense as part of the project cost.)
Next steps!
Once you have all of the above, finance can book the invoice and can proceed with the payment procedure. (Assuming the project manager has added on the invoice any relevant coding information needed for the booking such as project code, budget line, ledger, etc.)
Wrapping up
Let me emphasise that this whole exercise of collecting and checking all documentation is not just for the funder, or for the auditor. Yes, they may require you to keep all these documents. And they may request to see and check them. And yes, it is important to comply. But in essence you do this for yourself. You do it to be sure that everything you have in your bookkeeping and everything you report, is real. You do this to be sure that resources are used for achieving your mission in the best, most effective and most efficient way.
After all, the reason you raise funds and manage money is to be successful in your mission. All the things I write about aim to help you do that better. More professionally, more easily, more effectively. As well as more confidently and with more enjoyment. So please do not hesitate to let me know how I can serve you best!
How I can help
Check out my free resource Build a Solid Base for your nonprofit: https://www.changingtides.eu/3-steps-to-a-solid-base-for-your-nonprofit/
If you would like simple steps to set up and organise your finance & admin foundations guidance by me, you can get a bundle of six simple and short workshops here: https://www.changingtides.eu/financeandadminbundle
In case the bundle is too much for you at this moment, feel free to pick one or more of the workshops individually:
- Set up your financial processes: https://www.changingtides.eu/financialprocesses
- Understand important basics of bookkeeping for nonprofits: https://www.changingtides.eu/bookkeepingfoundations
- Be sure you are keeping all the documents you need for project donors, auditors, or officials: https://www.changingtides.eu/documentationfornonprofits
- Plan your cash flow for a year: https://www.changingtides.eu/cashflowfornonprofits
- Get a feel for how time sheets can be helpful to everyone in your nonprofit and set them up straightaway: https://www.changingtides.eu/timesheetsfornonprofits
- Learn how to calculate the price of time spent of your team members, including allocations for general costs that are used in different projects: https://www.changingtides.eu/feesfornonprofits
Please note, the bundle is cheaper than buying all six workshops separately: https://www.changingtides.eu/financeandadminbundle
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