Guide to Fund Accounting in Healthcare Nonprofits


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What Is Fund Accounting?

Fund accounting is a necessity for any nonprofit organization. As a specialized type of bookkeeping, fund accounting helps nonprofit leaders track their earnings, spending, and budgeting. It promotes transparency and accountability while tracking each individual fund separately. Using fund-based accounting software can simplify and streamline the nonprofit accounting process.

How Does Fund Accounting Work?

Accounting serves many different purposes for both for-profit businesses and nonprofit organizations. Fund accounting is an accounting system most useful for nonprofits, as well as governments. It involves tracking cash flow with a focus on accountability rather than profitability. It helps nonprofit leaders make decisions about when and how to preserve or use their financial resources.

What Is the Difference Between Fund Accounting and Regular Accounting?

While “regular” accounting deals with assets, liabilities, and capital accounts, fund accounting is simpler. It deals with only fund balances. Fund sources must correspond with their accepted or intended uses. For instance, if the government raises taxes to build a sewer line, the funds from the taxes must only go towards the sewer line and nothing else. In this way, fund accounting ensures transparency and accountability.

Do Nonprofits Use Fund Accounting?

Nonprofit organizations need to use fund accounting to ensure funds serve their intended purposes. In addition, it helps organizations secure future funds and avoid the unwanted repercussions involved with misusing funds. You’ll need to use fund accounting if you engage in any of the following practices:

  • Use donations to fund basic operations or special projects.
  • Apply for and receive grants for specific purposes.
  • Have more than one independent fund to keep track of.

The funding for nonprofits comes from taxpayers, special foundations, the public, and other sources, and the money has to serve designated purposes. The source and nature of nonprofit funds necessitate accountability. Funds amassed for one purpose have to remain separate from funds amassed for another purpose. Misuse of funds can have serious consequences for a nonprofit — keeping funds separated helps reduce the risk of fund misuse or fraud.

What Is Fund Accounting Software?

Nonprofit accounting can get complicated. Most nonprofits run multiple fundraising campaigns, apply for several grants with unique limitations and benefit from more than one donor or other fund sources. Keeping track of your fund sources and allocations, though necessary, can be challenging. Using fund accounting software can make the process much easier. The best fund accounting software provides automation and user-friendly tools to simplify your fund accounting.

What Is the Top Fund Accounting Software?

If you’re looking for easy-to-use fund accounting software, MIP® solutions are a great choice. The MIP Fund Accounting® nonprofit accounting system is a comprehensive financial management system designed for the nonprofit sector. Since the platform is built specifically for nonprofits, it stands apart from other fund accounting software, providing unmatched flexibility, scalability, and security.

What You’ll Learn in This Guide

Throughout this guide, you’ll learn about the ins and outs of fund accounting — what it is, why it’s important and how you can implement it in your nonprofit healthcare organization. Understanding nonprofit accounting will help ensure your long-term success. In addition, you’ll learn how fund-based accounting software can elevate your nonprofit accounting practices.


Chapter 1: What Are the Best Practices for Fund Accounting?

All nonprofits should use fund accounting, including those in the healthcare sector. Fund accounting helps healthcare nonprofits achieve their goals while maintaining transparency and accountability. Before getting involved with nonprofit accounting, you’ll need to learn about fund accounting basics and best practices. Following all best practices will ensure the most accurate and helpful accounting for your organization.

What Are the Basics of Fund Accounting?

Understanding fund accounting basics will help you make the best choices for your healthcare nonprofit. It’s vital to know what fund accounting is, how it works and why it’s so important. Here is some basic information to help you better understand fund accounting.

1. What Type of Account Is a Fund?

The defining feature of fund accounting is that it revolves around individual “funds” — where they come from, what their purposes are, and when and how they’re spent.  A fund is a self-balancing set of accounts — money flowing into and out of an organization. Different types of funds might include general funds or special reserve funds. Funds can be unrestricted, restricted, designated, or fixed. It’s important to track different funds separately, as each may have limited permitted uses.

2. Why Is GAAP in Reference to Fund Accounting?

Fund accounting should follow the generally accepted accounting principles (GAAP). These are the set of accounting standards established by the Financial Accounting Standards Board (FASB). All publicly traded companies in the United States have to follow GAAP by law. Other organizations should follow the standards, as well.

3. Does Fund Accounting Follow Other Principles?

In addition to adhering to GAAP, nonprofits and governments must follow other accounting principles. Governments have to adhere to the principles set by the Government Accounting Standards Board (GASB). Nonprofits have to adhere to the GASB standards and other standards from the FASB.

4. What Are the Different Types of Fund Accounting?

The term “fund accounting” might refer to several different types of accounting. In this guide, we discuss fund accounting as it applies to government bodies and nonprofits. However, the term is also used to describe investment and portfolio accounting. For example, an accountant who manages a hedge or mutual fund is also a fund accountant. However, different definitions and principles apply.

5. What Are Restricted Funds?

Fund accounting deals with both restricted and unrestricted funds. You can only use restricted funds for a specific purpose. Restrictions might come from the government or the fund’s donor. The terms of the agreement should outline any applicable restrictions. Keeping track of restricted funds is vital — proof that you’ve spent your restricted funds as required may be necessary during legal proceedings or audits. Fund accounting keeps restricted funds separate from other revenue sources to ensure they’re spent as required.

What Is the Rationale for Fund Accounting?

Fund accounting is the standard across government bodies and nonprofits. Its rationale is similar for all the different types of organizations that use it. Although accounting needs vary across these organizations, the emphasis on accountability is applicable for all of them.



1. Why Is Fund Accounting Necessary?

This special type of accounting is necessary for several reasons. Fund accounting breaks up an organization’s finances into appropriate funds, helping organizations keep revenue within the correct categories to ensure appropriate spending. It aids decision-making and helps promote accountability.

2. Why Do Governments Use Fund Accounting?

In government, the wide range of operations, constraints, and transactions call for complex accounting. Governments have to use fund accounting for transparency and accountability purposes. They handle revenue streams from many different sources and must ensure they use the correct funds for their designated purposes. Funds may come from the public through taxes, fines, or fees. Each individual fund falls under broad and narrow categories. Government funds may include:

  1. Special revenue funds: Special revenue funds are accounts with use limited to a specific project. They come from tax dollars, so proper spending is essential.
  2. Capital projects funds: Capital projects funds are for the acquisition, construction, or improvement of a major capital asset, like roads, railways, or subways.
  3. Enterprise funds:  Enterprise funds finance special activities and programs, such as food service programs or community centers. They’re for government projects similar to private business enterprises.
  4. Fiduciary funds: Fiduciary funds are those held in trust for others — dollars the government is holding that belong to other individuals. An example is the public employee pension plan trust fund. Pension funds include money that both employers and employees contribute.
  5. Custodial funds: A guardian or custodian handles custodial funds, which serve a beneficiary. In government, custodial funds allow for reporting fiduciary activities.

These are only a few examples — governments organize all revenue streams and expenses according to funds. A governmental body may need to account for dozens or even hundreds of different funds.

3. How Does the Rationale Apply to Nonprofits?

The same rationale also applies to nonprofit organizations. Nonprofits benefit by using a fund accounting solution. Like governments, nonprofits deal with funds that have various sources and limited uses. For that reason, it’s vital to ensure spending occurs as promised or intended. Misusing or losing track of funds can lead to severe repercussions.

What Are the Advantages of Fund Accounting?

Although fund accounting is necessary for nonprofits, it’s also highly beneficial. Fund accounting offers many advantages for a nonprofit, including the following:

  1. It ensures proper use of funds, decreasing liability risks.
  2. It creates the transparency needed to earn future donors and grants.
  3. It helps determine financial performance as needed.
  4. It guides decisions, including both day-to-day and major decisions.

Should I Use Fund Accounting?

Decision-makers for healthcare nonprofits should utilize fund accounting. Organizations in the healthcare sector handle unique revenue sources. Their various funds might include:

  1. Specific project funds: Some revenue streams may have only one acceptable use. For instance, donations acquired through a fundraising event for a specific project must go toward that project.
  2. Facility replacement and expansion funds: Other funds might include revenue collected for facility replacement or expansion.
  3. Endowment funds: An endowment fund is any revenue for a specific activity — since these funds derive from donations, proper use is essential.



1. What Are Some Best Practices of Fund Accounting?

Following fund accounting best practices elevates the accuracy and accountability involved with fund accounting. Nonprofit fund accounting principles and best practices include the following. You should try to:

  1. Focus on the long-term: Keep the bigger picture in mind when engaging with fund accounting. Think about how you plan to use your financial resources in the years to come. Make sure your fund accounting solution will lend itself to long-term success, not just short-term success.
  2. Make sure the data tells an accurate story: Your fund accounting practices must portray an accurate and detailed picture of how you spend each dollar in your organization.
  3. Always stay organized: Nonprofits should also stay organized when it comes to their fund accounting. Strong organizational skills will promote accuracy and thoroughness. You can use software tools to simplify organization.
  4. Make adjustments when needed: Keeping the status quo might not lend itself to financial success. Your fund accounting practice should reveal areas with room for growth. Plan to adjust your expenses or spending as needed, and keep an open mind.
  5. Evaluate your system yearly: Once a year, take a closer look at your fund accounting system. Verify that it will grow with your organization and serve all of your long-term needs. If necessary, consider upgrading to a new system or utilizing new tools.

Learn More About Fund Accounting Best Practices

Understanding fund accounting is vital for a nonprofit of any nature and scale. In essence, fund accounting is the tracking of individual funds, ensuring that all revenue streams serve their intended purposes. With such a strong emphasis on accountability, fund accounting must follow several sets of guiding principles, including GAAP and those set by the GASB and FASB. Since healthcare nonprofits deal with sensitive data and information, they should adhere to all accounting principles and best practices as they implement fund accounting.

Healthcare nonprofits should remember simple best practices, including focusing on the long term, ensuring the data reveals an accurate representation of spending, and being open to changes or adjustments. Learn more about nonprofit accounting best practices. Explore the software solutions from MIP Fund Accounting® and discover how they can help streamline your fund accounting.


Chapter 2: Fund Accounting in the Healthcare Industry

Many different industries benefit from fund accounting, including healthcare. Healthcare organizations deal with a complicated flow of money from various sources, as well as sensitive data and information. For that reason, organizing revenue streams as funds can help improve healthcare financial management.

Separating income into funds can help a healthcare nonprofit achieve its short and long-term goals. Fund accounting is a vital part of efficiency and decision-making for any nonprofit. Learn more about the importance of fund accounting for healthcare nonprofits.

Why Do Nonprofits Use Fund Accounting?

All nonprofits use fund accounting for the same basic reasons. Fund accounting allows nonprofits to:

  1. Track budgets, income sources, and expenses.
  2. Ensure financial accountability and transparency to reduce the risk of fraud or irregularities.
  3. Keep shareholders, donors, and grant-funders satisfied.
  4. Make informed spending decisions.



What Is Fund Accounting in Healthcare?

Healthcare organizations are among those that benefit from fund accounting. Their finances are multifaceted and often complex. Healthcare facilities must handle expenses, payments, taxes, and various sources of income. They receive payments from multiple sources, including:

  1. Private insurance companies: Healthcare organizations receive payments from patients’ insurance companies. Keeping track of these revenue streams is an important priority.
  2. Individuals: Healthcare organizations also receive funds from individuals, including patients paying out-of-pocket for services and individuals making donations.
  3. Government insurance programs: Some healthcare facilities receive funds from government insurance programs along with the funds they receive from individuals. Government-issued funds always have restricted uses and require careful attention.
  4. Grants and loans: A healthcare organization might rely on grants and loans from the government or private lenders. The organization must track these funds to ensure they comply with any limitations and repay loans as needed. Healthcare organizations may borrow funds from public or private institutions, which they must use according to borrowing terms.

These various streams of revenue quickly complicate accounting for healthcare organizations. Most sources of revenue restrict acceptable fund uses. As a result, keeping funds organized and ensuring accountability is vital. Fund accounting can do just that.

Why Is Fund Accounting Important to Healthcare Providers?

Fund accounting is important for healthcare organizations. It’s vital for accountability purposes, preparing leaders for a potential audit or legal proceeding. While it’s a necessity, fund accounting can also help an organization achieve various goals.

Why Organize Income Into Funds?

Organizations benefit from organizing income into separate funds based on their sources and uses. For example, healthcare nonprofits may need to use their revenue streams for different purposes, including physician employment, information technology, facility upkeep or expansion, and competitive innovation. Fund accounting can help ensure the financial health needed to achieve these goals. It helps healthcare organizations manage income streams as effectively as possible.

What Can Fund Accounting Achieve?

In the healthcare sector, fund accounting can help an organization:

  1. Increase efficiency: The effective organization of funds can speed up the processes of resource allocation. Fund accounting can elevate an organization’s efficiency.
  2. Make small and large decisions: Detailed financial data through fund accounting also helps leaders make both small and large decisions. Having accurate financial data on hand is essential for planning projects or determining financial needs.
  3. Accomplish more with your resources: With the streamlined efficiency and accurate data that fund accounting can provide, healthcare organizations may find themselves able to stretch their resources further and achieve more.
  4. Earn future donations: Of course, one of the most notable aspects of fund accounting is that it increases accountability and transparency. While this is essential for legal and ethical purposes, elevated transparency might also allow a healthcare nonprofit to appeal to donors and grant-issuers. In that way, fund accounting can help you secure future donations.
  5. Ensure the best patient and partner experience: With increased efficiency, informed decisions, optimized resources, and secured donations, healthcare organizations can better meet patient and partner needs. Fund accounting can help you provide the best possible experience for those you serve.



Why Use Software for Healthcare Organizations?

Fund accounting is both necessary and beneficial. However, it can be time-consuming and complicated. Rather than pouring time and effort into managing funds, healthcare organizations could better use their time by focusing on patient care and service. Thankfully, you can rely on specialized software to make fund accounting much simpler.

Using fund accounting software takes the burden off of your team, streamlining fund management. It also reduces the chance of error by automating processes. Comprehensive software makes it much quicker and easier to evaluate your finances and utilize your revenue streams as intended.

Learn More About Fund Accounting in Healthcare

Fund accounting for nonprofit organizations and government agencies is essential. Healthcare organizations benefit from using the utilizing this special type of accounting. Learn more about how nonprofit fund accounting methods work in the healthcare sector. If you’re interested to learn what fund accounting can help a healthcare organization achieve, read about how MIP Fund Accounting® software helped one family care clinic chain.


Chapter 3: Goals of Fund Accounting

To understand how fund accounting for nonprofits is beneficial, you’ll need to learn about fund accounting standards and methods. Since fund accounting emphasizes accountability above all else, it’s subject to strict guiding principles. Learn about the goals of fund accounting, the duties of an accountant in this role, and the basic principles that guide fund accounting.

What Are the Goals of Fund Accounting?

An organization may want to utilize fund accounting for several reasons, as it can help improve financial transparency and health. When done properly, fund accounting allows an organization to achieve all of the following goals:

  1. Avoiding budget deficits: Budget deficits, which occur when expenses exceed revenue, can leave a healthcare nonprofit in a tough situation. One of the main goals of fund accounting is to ensure budget deficits do not occur. It should help reveal possible future deficits, allowing decision-makers to implement changes as necessary.
  2. Designing the best resource allocation: In addition, fund accounting should help an organization make the most of its resources. Well-organized funds and financial reports reveal ways leaders could optimize each dollar’s effectiveness. In turn, better resource allocation results in a more positive patient and partner experience.
  3. Using funds in the most efficient ways: Along the same lines, fund accounting helps an organization understand what funds are available for which purposes, allowing them to use their financial resources efficiently.
  4. Ensuring transparency and eliminating fraud: Fund accounting shows a clear pathway for each and every dollar that flows in and out of the organization. The clarity and transparency it provides minimize the risk of fund misuse or fraud, which is a major issue facing nonprofits of all sectors.

  6. Creating clear communication with board members and stakeholders: Fund accounting should also improve communication between a healthcare nonprofit’s leaders and its stakeholders. Leaders must be able to convey the organization’s financial situation and needs to outsiders. Their fund accounting processes should provide them with clear and easy-to-interpret data.
  7. Planning year-over-year for revenue and program needs: Finally, a healthcare nonprofit’s fund accounting practice should give them the tools to create long-term plans. Leaders should be able to determine revenue and program needs for the coming years.



What Are the Duties of a Fund Accountant?

Fund accountants are the professionals who perform or assist with an organization’s fund accounting. They oversee the bookkeeping and tracking for one or more assigned funds — a responsibility that entails many different duties. Some of the things a fund accountant must do include:

  • Creating financial statements: Someone in this role is responsible for creating financial statements weekly, monthly, quarterly, or annually. How often statements and other reports are necessary will depend on the organization and its goals.
  • Conducting research: Additionally, a fund accountant should conduct research to help improve fund management. They may weigh in on conversations about resource allocation.
  • Resolving any discrepancies: If any discrepancies in the financial data arise, the fund accountant must resolve them or report them to the nonprofit’s leadership team.
  • Complying with principles and procedures: Throughout all of their duties, a fund accountant must comply with any organizational policies and procedures, as well as standard accounting principles.

Job duties will depend on the nature of the funds in question — some fund accountants handle investment portfolios such as hedge funds, which differ from nonprofit funds. An accountant managing a client’s investment portfolio has to develop investment strategies to maximize their clients’ wealth. On the other hand, fund accountants in the nonprofit sector help organizations keep track of revenue streams and maintain accountability. The emphasis is on responsibility rather than wealth maximization.

Is a Fund Accountant an Accountant?

Yes — fund accountants are accountants. Although the roles and responsibilities differ, fund accounting is a form of accounting and a fund accountant is a special type of accountant. Someone in this role must have a degree in finance, accounting, economics, or another related field.

What Does Fund Accounting Look Like?

This unique type of accounting might involve a wide range of different tasks depending on the organization and the industry. A fund accountant’s daily tasks might include the following:

  1. Preparing detailed reports to explain fund flow.
  2. Reconciling account data with other sources.
  3. Correcting variances with other sources.
  4. Scheduling audits and creating financial statements.
  5. Searching for any irregularities with fund activities.

What Is a Fund Accounting Example?

All fund accounting helps to achieve the same main purpose — keeping various fund accounts organized and balanced. However, fund accounting can look different from one organization to the next. Accountants might use several different methods to achieve this goal.

What Are the Fund Accounting Principles?

Fund accounting has to follow a few sets of governing principles, some of which are unique while others apply to all types of accounting. These principles help to ensure that all accounting methods are fair, reliable, and accurate.


The generally accepted accounting principles (GAAP) include 10 basic points:

  1. Regularity: This principle is simple. An accountant adheres to GAAP rules and regulations.
  2. Consistency: Consistency is a fundamental priority for all accounting. Professionals should apply the same standards and processes from one period to the next. Doing so ensures comparability. An accountant must disclose and explain any changes in their standards or processes.
  3. Sincerity: The principle of sincerity means that each accountant must strive to provide accurate and impartial information at all times.
  4. Permanence of methods: Similar to the principle of consistency, the permanence of methods principle states that all procedures in financial reporting should stay consistent.
  5. Non-compensation: Non-compensation means that an accountant should report both positives and negatives with full transparency. For nonprofits, non-compensation is a critical, since accountability is such a major priority.
  6. Prudence: Prudence refers to keeping information fact-based and objective. Accountants should not let their own speculation impact their reporting.
  7. Continuity: The principle of continuity means that accountants must assume a business or organization will continue to operate as they evaluate assets.
  8. Periodicity: The term “periodicity” could be substituted with “timeliness.” In essence, all reported data should fit within the appropriate time period.
  9. Materiality: Materiality refers to thoroughness. An accountant should make sure to disclose all financial data and information when offering reports.
  10. Utmost good faith: “Good faith” always refers to honesty and transparency. Accountants must exercise good faith during all reporting and other practices.

What Are GAAP’s Purposes?

The overall goal of GAAP is to ensure financial statements are as accurate, consistent, and complete as possible. These principles set high standards for all types of accounting, including nonprofit accounting. In addition, GAAP help keep financial statements comparable across organizations for the sake of investors.



What Do GAAP Accomplish?

GAAP help ensure honesty, consistency, and objectivity in financial reports. While GAAP compliance is only required for publicly traded companies, these principles are important for any nonprofit to follow, as well. Lenders, investors, and financial institutions prefer to partner with those who follow GAAP.


In addition to following general principles, governments and nonprofits must adhere to the standards set by the Government Accounting Standards Board (GASB). The GASB is an independent, nonprofit organization. Its founding took place in 1984 to establish and improve financial accounting and reporting standards for local and state governments. The standards expand on GAAP, adding more specific best practices.


Nonprofits must also comply with principles from the Financial Accounting Standards Board (FASB). The FASB is another independent, nonprofit organization. It was founded in 1973. It serves to establish and improve GAAP. The FASB has the power to establish and interpret GAAP for public and private companies as well as nonprofits. It’s part of a group of organizations that also includes the Financial Accounting Foundation (FAF), the Financial Accounting Standards Advisory Council (FASAC), and the GASB. The FAF provides oversight to both the FASB and the GASB. The FASB also educates stakeholders on the standards it sets.

Following GAAP as well as GASB and FASB standards ensures the most accurate, reliable, comparable, and useful fund accounting. For that reason, every nonprofit should be familiar with these principles. They are the basic foundation for all nonprofit accounting.

Learn More About Fund Accounting Operations

Nonprofits use fund accounting to achieve a range of financial goals. For fund accounting to be effective and reliable, it has to comply with various principles and standards, including GAAP and the regulations set by the GASB and FASB. Since all organizations are unique, fund accounting methods vary based on each organization’s goals and the nature of its funds. If you’d like to learn more about fund accounting operations and principles, reach out to MIP® with questions.


Chapter 4: Importance of Fund Accounting

Fund accounting serves several purposes within nonprofit organizations. It’s an absolute necessity for any organization that deals with separate funds, especially if those funds come with restrictions or limits. Learn why fund accounting should be a priority for any nonprofit, including healthcare nonprofits.

Why Is Fund Accounting so Important?

All nonprofits should use fund accounting. It’s important for a few different reasons, including the following:

  • It promotes accountability: The main reason fund accounting is essential is that it helps to ensure the proper use of all funds. By their nature, nonprofits are not profit-driven. Instead, they rely on donations, grants, and similar revenue streams to achieve their goals. These sources often restrict fund uses. Maintaining separate fund accounts makes it easier to use funds as permitted, promoting accountability and limiting the risk of misuse or fraud.
  • It informs decisions: Fund accounting helps nonprofit organizations identify what money is available for what purposes. While it ensures accountability and the proper use of funds, it also helps inform complex financial decisions. Fund accounting can help a nonprofit make the best decisions and maintain or improve financial health.

How Can Fund Accounting Help Management?

The benefits of fund accounting serve the management end of operations. Every decision in a healthcare organization relies on financial reports. Here are a few of the ways fund accounting can guide nonprofit management:

  • It helps leaders decide how to allocate funds and make major decisions.
  • It helps management create short- and long-term plans as needed.
  • It allows management to assess each fund individually when making decisions.
  • It keeps financial information clear and organized for evaluation.



Why Is Fund Accounting Important in Healthcare?

Healthcare organizations use fund accounting for various reasons. When it comes to the healthcare sector, financial wellness is complex. Leaders of healthcare organizations have to make both small and large-scale financial decisions every day. They may need to allocate resources for:

  • Personnel changes: Healthcare organizations must be prepared to make personnel changes, which involve hiring, onboarding, human resource management, and other factors.
  • Technological advancements: The healthcare industry is always evolving, and new technology emerges often. Nonprofits provide the best level of care and enjoy the greatest efficiency when they invest in technological advancements. However, new technology can be expensive and complicated, so careful financial management is a necessity.
  • Facilities upgrades: As healthcare nonprofits grow and change, they often need to expand, adjust, or upgrade their facilities. Changing or creating new facilities is a major expense.

Such fund allocations allow healthcare professionals to provide the best possible level of care to their patients. However, making financial decisions is no easy task for healthcare management. That’s why fund accounting is so important — it guides financial decision-making by providing useful and accurate information.

Why Use Fund Accounting?

Fund accounting provides the leaders of healthcare organizations with useful financial data regarding available funds. In that way, it guides conversations about how to best use resources. It limits the chance for overspending or fund misuse and keeps decision-makers accountable for their choices. Proper financial management through fund accounting makes positive changes possible. As a result, healthcare organizations may be able to achieve various goals, such as:

  1. Providing the best possible experience for their patients: Technological improvements, facility upgrades, and other investments can elevate the patient experience. Fund accounting can help an organization decide what changes to make and ensure financial wellness in the process.
  2. Better serving their communities: Improved decision-making and appropriate upgrades can allow a healthcare nonprofit to better serve its community.
  3. Promoting their reputation: As a side-effect of the positive changes fund accounting can help produce, healthcare nonprofits might enjoy a stronger reputation among community leaders, donors, and grant organizations.
  4. Earning greater revenue by boosting credibility: An improved reputation and increased credibility may even help healthcare nonprofits secure greater revenue. Financial intelligence and transparency in spending are major selling points for any nonprofit.
  5. Avoiding fraud or fund misuse with accurate fund data: The availability of clear, detailed, and accurate fund data reduces the chance of fund misuse or fraud among nonprofits.
  6. Maintaining financial health: In addition, fund accounting may help a nonprofit retain financial health and strength. Fund accounting can help an organization avoid defaulting on loans or losing revenue sources.

Learn More About the Importance of Fund Accounting

Fund accounting is necessary for nonprofits, including those in the healthcare sector. It serves many different purposes, both legal and practical. While it’s critical for accountability purposes, it can also promote the financial health of an organization by informing major spending decisions. For that reason, fund accounting is essential as well as beneficial. Learn more about the importance of fund accounting and how it affects management and budgeting from MIP Fund Accounting®.

Fund Accounting for Nonprofits

Fund accounting is necessary for nonprofits for many different reasons. Separating revenue sources into individual funds promotes responsible resource management and accountability. It helps to ensure the proper use of funds, including those subject to limits and restrictions.

While fund accounting is necessary for legal and logistical purposes, it also offers various benefits. It can elevate your nonprofit by informing major financial decisions. In addition, it might help you secure new and continued income sources, allowing you to achieve your goals and meet the needs of those you serve. Fund accounting is as beneficial as it is necessary for a healthy, successful nonprofit organization.



What Is Nonprofit Fund Accounting?

Nonprofit fund accounting is a specialized type of bookkeeping with an emphasis on accountability rather than maximizing profit. It allows nonprofits to track each dollar they receive and spend, following the flow of funds into and out of an organization. It ensures fund use occurs as promised or intended, which promotes accountability and transparency. Here are some additional details on nonprofit fund accounting basics:

How Are Funds Accounted For?

Organizing and tracking funds can be a complex task — some organizations might receive funds from dozens of different sources, each of which delineates a specific purpose. As a result, accounting for each individual fund requires diligent attention to detail.

Funds require separation based on their sources, restrictions, uses, and other factors. For instance, the donations earned during a specific fundraising campaign might need separation from other donations. Each fund contains its own self-balancing set of accounts. Fund accounting keeps each fund divided and organized, tracking the flow of dollars into and out of the organization. As a result, nonprofit leaders have access to a clear picture of their finances.

Why Do Nonprofits Use Fund Accounting?

Nonprofits use fund accounting for a few different reasons. For one, it allows them to meet high standards of transparency for reference within and beyond the organization. The emphasis on accountability that fund accounting can achieve is necessary for legal and ethical reasons — the donations and grants that nonprofits rely on involve strict limitations. A nonprofit must ensure it spends each and every dollar according to those restrictions. Fund accounting can help a nonprofit maintain accountability and use funds properly.

In addition to boosting accountability, fund accounting is an important aspect of financial health and decision-making. Using fund accounting, a nonprofit can:

  1. Keep track of how much money they have available for specific purposes: While a nonprofit may have a certain amount of money available, each dollar is subject to restrictions. Fund accounting helps nonprofit leaders understand how much spending power they have for specific purposes.
  2. Make informed decisions about how to use resources: The information provided through fund accounting can help leaders make the best financial decisions and achieve more of their goals.
  3. Secure future contributions: In many ways, fund accounting can help an organization secure future contributions. It helps nonprofit management make sound financial decisions, which is encouraging to donors. It also helps make audits go smoothly and limit the risk of fraud. The transparency and accountability fund accounting promotes can help organizations appeal to donors and grant issuers.
  4. Measure financial health with accuracy: Fund accounting also allows organizations to measure their financial health with accurate, timely data and reports.

Why Use Fund Accounting Software for Nonprofits?

Though nonprofit accounting is necessary, it can also be complicated and time-consuming. Healthcare nonprofits might consider utilizing specialized fund accounting software. Software built specifically for fund accounting purposes streamlines the process and tightens the margin of error.



What Are the Benefits of Using a Fund Accounting Software?

Finding ways to simplify fund accounting processes can be a major advantage for a healthcare nonprofit. One of the most effective ways to improve your fund accounting is to invest in a specialized software tool. Utilizing software streamlines the complicated nonprofit accounting process. In addition to making your fund accounting more efficient, software includes automated tools — automation decreases the chance of critical mistakes or misunderstandings.

Essentially, using a fund accounting software solution can make your fund accounting quicker, simpler, and more accurate. It makes the process of tracking funds easier, allowing nonprofit leaders can rely on quick and accurate financial information. If your organization requires fund accounting for transparency and decision-making, consider investing in software.

Why Use MIP Fund Accounting® Software?

If you’re looking for a software solution for your nonprofit accounting, consider MIP® fund accounting software. It allows you to track unlimited funds, so it works for even the most complex accounting demands. Its user-friendly interface lets you manage even the most intricate financial processes.

  • Strengthen your decision-making: MIP® software will help you strengthen your organization’s financial decision-making, giving you the tools to make the most of your resources.  You can follow the path of every dollar as it flows in and out of your organization. As a result, you’ll be able to meet high standards of transparency and accountability, which may help you secure future funds.
  • Rely on training and assistance: The MIP® team is always available to provide assistance to the nonprofits that utilize our software. We’ll give your members the training needed to maximize efficiency and make the most of the tools we offer. Our solution provides complete financial oversight to help nonprofits achieve their missions.
  • Ensure accountability and efficiency: Nonprofits and government bodies use fund accounting to organize and track their money flow. While for-profit businesses use accounting to help maximize profits, nonprofit organizations use accounting to maintain and demonstrate accountability. Fund accounting helps nonprofit leaders make the most efficient use of funds so they can provide the best possible services. For healthcare nonprofits, fund accounting contributes to improved patient experiences.

Request a Demo With MIP® Today

MIP® purpose-built fund accounting software offers all the advantages of nonprofit fund accounting. It will help your organization retain accountability, make important decisions, allocate resources, and earn future contributions. Our trusted solutions are scalable and configurable for your unique needs.

MIP® is built to be FASB-compliant, creating statements for auditors, including restrictions. It also meets GASB compliance for audits. With the report writer, you can easily create high-level FASB- and GASB-compliant statements and IRS Form 990. To see MIP® software in action, request a demo today. One of our experts will schedule a personal software tour for you.

Thank You Page

Thank you for downloading our Guide to Fund Accounting in Healthcare Nonprofits. We hope you find this guide useful and informative. Throughout the chapters of this guide, we’ll discuss what fund accounting is and why it’s crucial for healthcare nonprofit organizations. While fund accounting is a necessity, it’s also extremely beneficial for a wide range of reasons.

What Is Fund Accounting?

Fund accounting is the special type of accounting that governments and other not-for-profit organizations use to keep track of their finances. Fund accounting has to follow specific principles and procedures to ensure accuracy and reliability.

Why Is Fund Accounting Important?

Fund accounting is essential for any nonprofit that handles various revenue streams, especially if any sources of income have restricted uses. In many ways, fund accounting is a vital aspect of ensuring nonprofit accountability. At the same time, it’s also helpful for decision-making and securing financial resources. Any nonprofit organization can benefit from implementing the best fund accounting processes.

What You’ll Learn in This Guide

If you’re curious about fund accounting for healthcare nonprofits, this guide will help you learn more. In this guide, we’ll cover topics including:

  • The basics of fund accounting: First, we’ll discuss what fund accounting is, how it works and why it’s important for nonprofits of all sectors and scopes, including those involved with healthcare.
  • Best practices for fund accounting: We will also talk about how nonprofits can exercise best practices in their fund accounting procedures.
  • The goals, methods, and principles of fund accounting: Fund accounting, like other types of accounting, has certain goals and must adhere to certain principles. It’s important to understand the guidelines for fund accounting and why they matter.
  • Why fund accounting is important: You’ll also learn why fund accounting is so important — it’s both necessary and beneficial.
  • How software can simplify and streamline fund accounting:  Finally, we’ll discuss how specialized software tools can take your nonprofit’s fund accounting to the next level by simplifying and streamlining your processes.

Contact Us to Learn More

Fund accounting is a vital part of any nonprofit organization, including those in the healthcare sector. It promotes accountability and the proper use of funds while helping leaders make the best decisions and secure financial resources. Healthcare nonprofits rely on fund accounting to manage each of their donor and grant dollars.

One of the main ways to enhance your organization’s fund accounting is to utilize specialized software. At MIP®, we provide software solutions for nonprofit accounting. Our tools help simplify, streamline and improve the fund accounting process. Feel free to reach out to us at MIP® with any questions about fund accounting. We’ll be happy to provide you with more information or offer a demo of our software.

Related Resource

The Fundraising Playbook: How to Report and Manage Donations for Nonprofit Growth 

Date: October 12, 2023 Time: 1:00 p.m. CT   Set, hike! As we rush towards year-end, get ready to score a touchdown…

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