Restricted funds live in a spreadsheet
The ledger holds a balance and a workbook holds which portion is restricted, by whom, and until when. Reconciling them is monthly and manual.
ERP by industry
Nonprofit accounting is ordinary accounting with an extra dimension that everything must be reported against: whose money is this, what were they told it would be used for, and can you prove it. Most systems bolt that on and it shows.
Tell us your grant count and how you report functional expense today. We will be straight about whether we fit.
The problems
These are structural consequences of running restricted funding through a general ledger designed for unrestricted commercial activity.
The ledger holds a balance and a workbook holds which portion is restricted, by whom, and until when. Reconciling them is monthly and manual.
A grant running July to June against a calendar fiscal year means every report needs two overlapping period structures, and most systems support one.
Program, management, and fundraising allocation is computed once a year for the 990 rather than maintained continuously, so nobody can see program efficiency during the year.
Every funder wants a different format on a different schedule, and each report is assembled by hand from the same underlying data.
Recognising that restricted funds have been spent according to their purpose — and moving them — is a judgement made in a spreadsheet and posted as a journal.
Single audit requirements mean assembling evidence that spending matched restrictions, which is straightforward if it was tracked and archaeological if it was not.
Where the money goes
A representative shape for a nonprofit between $5M and $30M. The functional split is the number every funder and every regulator looks at first.
Expenses that could not be assigned to program, management, or fundraising end up in a residual that gets allocated by formula at year end. Where that residual is large, the functional expense ratio is substantially a product of the allocation method rather than of actual spending — and that is precisely what a funder examining your overhead ratio is trying to understand.
Your stack
Your donor system and grant management tools stay. What changes is that the financial side stops being reassembled by hand each month.
Benchmarks
Drawn from our own engagements with nonprofits between $5M and $30M. The bar is a typical erp.io customer after two quarters; the marker is the segment median.
The structural mistake we see most often is restricted funds tracked as separate accounts. It works at three grants and becomes unmanageable at thirty, because every restriction multiplies the chart of accounts and none of them consolidate cleanly.
Restriction is properly a dimension on the transaction: this expenditure was funded by this grant, for this purpose, within this period. Held that way, a grant report is a query rather than a reconstruction, and the chart of accounts stays the size the organisation actually needs.
Most nonprofits compute the program, management, and fundraising split once a year for the Form 990, using an allocation formula applied to a full year of expense.
Coding each expense to a function as it is incurred — with allocations applied continuously rather than retrospectively — means the ratio is visible monthly. That matters because a board asking about program efficiency in month seven currently gets an estimate, and because an organisation that discovers its overhead ratio in January has no remaining year in which to change it.
When restricted funds are spent according to their purpose, the restriction is released and the amount moves from restricted to unrestricted net assets. In most organisations this is a monthly judgement made in a workbook and posted as a journal.
Where restriction is a dimension on the expenditure, the release computes itself from the spending that satisfied it. That removes a judgement, a journal, and one of the more common sources of restatement in nonprofit audits.
Intacct has the best nonprofit functionality in the mid-market — deeper fund accounting, more mature grant management, and a large base of nonprofit-specialist implementation partners and auditors who already know it. If fund accounting is the centre of your requirement rather than the context around it, we would tell you to buy Intacct. Where we fit is nonprofits whose core problem is reporting, automation, and multi-entity consolidation, with fund tracking as a requirement rather than the whole of it.
Questions
Send your grant count and functional expense method. Some nonprofits should buy the competitor and we will say so.