INPAG Exposure Draft 3 in a nutshell – by IFR4NPO

Exposure Draft 3 (ED3) focuses on key areas like:

• Fund Accounting: This tracks how resources are received and used, according to their intended purpose
• Project-Specific Reporting: Addresses the challenge of varied reporting demands from different donors
• Cost Classification: Guides the presentation of expenses, including the attribution of costs such as support costs
• Fundraising Costs: Looks at the costs involved in raising the money that non-profits need to operate

Fund Accounting is crucial. It lets NPOs show they’re using restricted donations properly. It also helps them track their unrestricted funds or reserves, which provide a financial safety net and lead to greater resilience. Further transparency concerning unrestricted funds can also help provide flexible funding. That said, the mechanics of fund accounting can be complex, especially for smaller organisations. With internationally recognised definitions and processes, we hope that accounting software can provide this functionality, even for low budget packages.

INPAG and Donor reporting tackles another big issue: diverse donor requirements. Many donors have bespoke budgeting and reporting templates, and all the additional work to provide accountability acts as a distraction from an NPO’s mission! The capacity needed to comply also creates a barrier to local organisations, who are closest to where the work is happening. INPAG provides a standard format for donor reports, including a bridge to the main accounts. This is a win-win for funders and NPOs.

The expenditure classification guidance in INPAG allows for flexibility. Non-profits come in all shapes and sizes, so one method won’t work for everyone. INPAG suggests a default way to show costs (by nature) but allows a choice where an alternative gives a clearer picture of their activities. Disclosures help to bring comparability. Standard approaches to cost allocation will provide information about support costs. This will also help with negotiations between NPOs and donors when covering the full cost of the projects they fund.

Fundraising costs are also covered to help answer questions about an NPO’s income quality and sustainability, or the efficiency and effectiveness of fundraising activities. INPAG has a broad definition of generating resources through donations, commercial and trading activities, or investment management. With INPAG, the non-profit sector can expect improved transparency, leading to stronger trust from donors and the public.

It is a long-awaited breakthrough supporting more effective and locally driven development efforts.

The final guidance is due to be published next year. We need your feedback now to make sure INPAG meets everyone’s needs – not just accountants, but anyone interested in non-profit work. Visit www.ifr4npo.org/have-your-say to share your thoughts by 16 September 2024.

Together, we can reshape the future of non-profit financial reporting!