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Creating accountable plan for expense reimbursement in non-profit organization

Creating an accountable plan for expense reimbursements in a non-profit organization is essential for maintaining transparency, ensuring compliance with tax regulations, and promoting responsible financial management. An accountable plan is a set of policies and procedures that govern how the organization reimburses employees, volunteers, and other authorized individuals for legitimate business expenses. Here's how to create one and the benefits it offers:

Steps to Create an Accountable Plan:

  1. Define Eligible Expenses: Clearly outline what expenses are eligible for reimbursement. Be specific and ensure that they align with the organization's mission and goals.

  2. Establish Documentation Requirements: Specify the type of documentation required for each expense. Common documents include receipts, invoices, and expense reports. Emphasize the importance of keeping records and submitting them promptly.

  3. Approval Process: Define a process for obtaining approval for expenses. This often involves supervisors or managers reviewing and authorizing expenses before reimbursement.

  4. Submission Deadline: Set a deadline for submitting expense reports. Encourage individuals to submit their reports promptly to avoid delays in reimbursement.

  5. Reimbursement Timeline: Determine how often reimbursements will be processed, whether it's on a regular schedule (e.g., monthly) or as expenses are incurred.

  6. Method of Payment: Specify how reimbursements will be made, such as by check, direct deposit, or other electronic means. Ensure that payments are made in a timely manner.

  7. Accounting and Record-Keeping: Detail how expenses will be recorded in the organization's accounting system and financial statements. This ensures accurate financial reporting.

  8. Compliance with Tax Regulations: Ensure that the plan complies with tax regulations, particularly IRS guidelines if applicable. An accountable plan can help prevent expenses from being treated as taxable income.

  9. Education and Training: Provide training and guidance to employees, volunteers, and others involved in the reimbursement process. Ensure that they understand the plan's requirements and procedures.

Benefits of an Accountable Plan for Expense Reimbursements:

  1. Tax Advantages: By following CRA guidelines for an accountable plan, the organization can ensure that expense reimbursements are not considered taxable income for employees and volunteers. This can result in tax savings for both the organization and the recipients.

  2. Transparency: An accountable plan promotes transparency in financial management. It clearly outlines the rules and procedures for reimbursement, which builds trust among stakeholders.

  3. Compliance: The plan helps the organization comply with tax regulations and legal requirements related to expense reimbursements, reducing the risk of audits and penalties.

  4. Cost Control: It allows the organization to control expenses by specifying eligible expenses and requiring proper documentation and approvals which in turn reduces unnecessary and irrelevant expenses from being charged to the organization.

  5. Efficiency: Having clear processes in place streamlines the reimbursement process, reducing administrative burden and ensuring timely payments.

  6. Accountability: An accountable plan holds individuals accountable for their spending by requiring them to provide evidence of legitimate business expenses.

  7. Financial Accuracy: Proper documentation and accounting under the plan contribute to accurate financial reporting and budgeting.

  8. Board Confidence: A well-structured plan can enhance the confidence of the board of directors and donors in the organization's financial stewardship.

  9. Legal Protection: Following an accountable plan can protect the organization from legal liabilities related to improper reimbursement practices.

  10. Fairness: It ensures that expenses are reimbursed fairly and consistently, avoiding favoritism or discrimination.

In summary, creating an accountable plan for expense reimbursements in a non-profit organization is a critical step in promoting financial responsibility, transparency, and compliance. By following IRS guidelines and best practices, the organization can benefit from tax advantages and maintain the trust of its stakeholders while efficiently managing its finances.