Financial Guide for Los Angeles Non-Profits: Grant Management, Compliance & Reporting

Operating a non-profit in Los Angeles is a unique challenge. You’re driven by a mission, working to solve some of the community’s toughest problems. But that passion is often met with the overwhelming burden of complex financial administration.

Unlike a standard for-profit business, non-profits face a “triple challenge”:

1. Grantors demand strict reporting on how every dollar is spent.
2. The IRS and the State of California require complex compliance filings to maintain your tax-exempt status.
3. The Public and Donors use watchdog sites to judge your financial health before they donate.

This guide breaks down the key pillars of non-profit financial management to help you build a sustainable, compliant, and trusted organization.

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1. Grant Management & The Non-Profit Chart of Accounts

This is the bedrock of non-profit accounting. When you receive a donation or grant, it’s not all just “money in the bank.” You must legally and ethically separate funds based on their intended purpose.

• Net Assets Without Donor Restrictions: General donations you can use for any part of your mission, including operations, salaries, and rent.
• Net Assets With Donor Restrictions: This is money given for a specific purpose—a new program, a capital campaign, or a specific set of expenses. You are legally bound to use this money only for that purpose.

The tool you use to track this is your Chart of Accounts (COA). A properly structured COA is the skeleton for your entire financial system.

The Smart Way to Structure Your Chart of Accounts

Many non-profits make the mistake of creating a massive, unusable COA (e.g., Program A - Rent, Program B - Rent, Admin - Rent).

The best practice is to use a simple, streamlined COA and leverage the “Classes” feature in QuickBooks.

• The COA lists what you spent money on (e.g., “Rent,” “Salaries”).
• The Class lists why you spent it (e.g., “After-School Program,” “Fundraising Event,” “Management & General”).

This method allows you to run a Profit & Loss report “by Class” and instantly see the exact financial position of each individual program.

Sample Chart of Accounts (Simplified)

Your full COA will be larger, but it should be built on this logic:

• Assets (1000s)
  • 1010 – Cash – Operating Account
  • 1020 – Cash – Restricted Grants
  • 1200 – Grants Receivable
• Liabilities (2000s)
  • 2010 – Accounts Payable
  • 2200 – Accrued Payroll
• Net Assets (3000s)
  • 3100 – Net Assets Without Donor Restrictions
  • 3200 – Net Assets With Donor Restrictions
• Revenue (4000s)
  • 4100 – Contributions – Individual
  • 4200 – Contributions – Corporate
  • 4300 – Grants – Foundation
  • 4400 – Grants – Government (Federal)
  • 4500 – Grants – Government (State/Local)
  • 4800 – Program Service Revenue
• Expenses (5000s+)
  • 5010 – Salaries & Wages
  • 5020 – Payroll Taxes
  • 5030 – Health Benefits
  • 5100 – Professional Fees – Accounting
  • 5110 – Professional Fees – Legal
  • 5200 – Rent & Occupancy
  • 5300 – Program Supplies
  • 5400 – Travel
  • 5500 – Fundraising Expenses

Sample “Classes” List

• Programs
  • Program 1: After-School Tutoring
  • Program 2: Food Pantry
  • Program 3: Community Workshops
• Supporting Services
  • Management & General (Admin)
  • Fundraising

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2. The Compliance Web: From Public Trust to Federal Audits

Maintaining your 501(c)(3) status is an active, ongoing process. This area is where a specialized non-profit accountant is most critical.

IRS and California State Compliance

• IRS Form 990: This is your most important annual filing. It’s not just a tax return; it’s a public-facing document that donors use to evaluate your organization.
• CA Attorney General (Form RRF-1): You must file this “Registration/Renewal Fee Report” annually with the Registry of Charitable Trusts. Missing this can lead to your organization being listed as “delinquent” and losing its right to solicit donations.
• CA Franchise Tax Board (Form 199): The state-level “Annual Information Return” to maintain your state tax-exempt status.

Public Scrutiny: Why the Form 990 is Your #1 Marketing Tool

Charity watchdog organizations like GuideStar (now part of Candid) and Charity Navigator do not conduct independent audits. Instead, they pull their financial data directly from your publicly filed Form 990.

The “Statement of Functional Expenses” in your 990—which shows your spending ratios for Program vs. Management vs. Fundraising—is what these sites use to give you a score.

A clean, accurate, and professionally prepared Form 990 is your single best marketing tool for building public trust and ensuring a high rating on these influential platforms.

Federal Grants & Uniform Guidance (2 CFR 200)

If your non-profit receives any federal money—either directly or as a “pass-through” grant from the State of California or the County of Los Angeles—you are subject to a massive set of rules.

• The New Standard: 2 CFR 200 (Uniform Guidance): Also known as the “Super Circular,” this is the comprehensive government-wide framework for managing federal awards. It unified and superseded the old, separate rules like OMB Circular A-110 (administrative requirements), A-122 (cost principles for non-profits), and A-133 (audit requirements).
• What it Governs: 2 CFR 200 dictates everything:
  • Cost Principles: What you can and cannot charge to a federal grant (e.g., fundraising expenses are “unallowable”).
  • Administrative Requirements: Strict rules for internal controls, record keeping, and procurement.
  • Audit Requirements: If your organization expends $750,000 or more in federal awards in your fiscal year, you are required to undergo a “Single Audit.” This is a complex, expensive audit of both your finances and your compliance with the grant rules.

Failing to comply with 2 CFR 200 can lead to disallowed costs (having to pay the grant money back) or even the loss of all federal funding. This is not an area for a generalist bookkeeper.

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3. Financial Reporting: Telling Your Mission’s Story

A proper accounting setup allows you to generate three key reports that tell your financial story to your board, donors, and grantors.

1. Statement of Financial Position (The “Balance Sheet”): Shows what you own and owe, and most importantly, breaks down your “Net Assets” into With and Without Donor Restrictions.
2. Statement of Activities (The “P&L”): Shows revenue and expenses, clearly separating restricted grant income from unrestricted donations.
3. Statement of Functional Expenses: This is the payoff. It breaks down every expense (like Salaries and Rent) by its function: Program, Management, or Fundraising. This is the exact report needed for your Form 990 and for GuideStar.

Conclusion: Your Mission Needs a Financial Strategy

Managing non-profit finances in Los Angeles is a high-stakes, specialized field, especially when navigating state compliance, public scrutiny, and complex federal grant rules.

Don’t let grant tracking, compliance, and reporting drain your time. You don’t need to be an expert in 2 CFR 200—you just need one on your team.

🚀 Focus on Your Mission. We’ll Handle the Numbers.

At Key Forecasts, we provide specialized, outsourced accounting and controller services for Los Angeles non-profits. We act as your expert financial partner, setting up your chart of accounts, managing grant compliance (including 2 CFR 200), and preparing a pristine Form 990.

We ensure you are compliant, give your board clarity, and free you to focus on what truly matters: your mission.

[Click Here for a Free Consultation to Discuss Your Non-Profit’s Needs]