An accountant for an NGO: in-house, freelance or outsourced

Who should keep the books of a Ukrainian NGO

A Ukrainian public association or charitable foundation must keep accounting records from the day it is registered, even before it has any income or staff. The books can be kept by the head of the organisation personally, by an in-house accountant, by a freelance accountant under a service contract, or by an accounting firm: the law allows all four, and the right choice depends on the number of transactions, grants and employees. Whichever option is chosen, the head of the organisation remains responsible for how accounting is organised.

Does a small NGO need an accountant

A dedicated accountant position is not required. Accounting and reporting are. From registration onwards the organisation has to:

Keep accounting records under the Law of Ukraine on Accounting and Financial Reporting: an accounting policy, source documents and ledgers, even if there are only two or three transactions a month.
File annual financial statements together with the report on the use of income of a non-profit organisation. If no money moved during the year, the reports are still filed, with zero figures.
Keep its non-profit status: a charter that meets the requirements of paragraph 133.4 of the Tax Code, and income spent only on the organisation’s purposes.
Have a qualified electronic signature for the head and access to the taxpayer’s online account, because reports are filed electronically.

Once the first employee is hired, the list grows: payroll, withholding of personal income tax and military levy, the unified social contribution, a quarterly payroll tax return, HR orders and military registration of staff. An organisation with no staff and one or two receipts a year can have its books kept by the head. An organisation with a grant and a team needs this to be someone’s actual job.

Four options and when each one fits

The head keeps the books personally

The law allows it. It suits a new organisation with no staff, no grants and a handful of transactions a year. The weak point: a director rarely knows how to complete the report on the use of income or what losing non-profit status would mean for the organisation. Mistakes tend to surface late, when the first grant arrives and the books for previous years have to be put in order.

An in-house accountant

Fits when the organisation runs several projects at once, has a steady flow of payments and its own team, and needs an accountant on site every day. Advantages: quick response, knowledge of how the organisation works, control over source documents at the moment of the transaction. Drawbacks: salary and social contribution costs regardless of workload, dependence on one person (leave, sickness, resignation), and few accountants on the market who know non-profit accounting and donor requirements specifically.

A freelance accountant

Fits a small organisation with a single grant or with regular but infrequent receipts. It usually costs less than a staff position. Risks: a freelancer serves many clients at once, there is no cover during absence, and databases and access often stay on the freelancer’s own computer. Most freelancers work with sole traders and limited companies and know the specifics of NGOs and foundations only superficially.

An accounting firm (outsourcing)

Fits organisations with several grants, employees and a project audit ahead. A team works on the books, there is cover and internal review, and the databases and reports belong to the organisation under the contract. Drawbacks: the firm is not in your office, so documents have to be passed on with discipline, and for a very small volume of transactions it may be more than you need. A common working arrangement: a project coordinator or finance officer on staff collects the documents, and the firm provides accounting support for the NGO.

What an NGO accountant must know beyond ordinary bookkeeping

An accountant who has spent years on limited companies can make mistakes in an NGO that never arise in business. Check that these topics are familiar:

Non-profit status. What makes an organisation non-profit, what can lead to removal from the Register of Non-Profit Institutions and Organisations, and how to keep non-profit status. Once removed, the organisation becomes liable to corporate income tax.
Use of income for its purposes only. An NGO may spend its income only on its own upkeep and its statutory aims. Distributing income among founders, members or employees (other than salaries and social contributions) is prohibited. The tax authority treats spending outside these purposes as profit.
Charitable receipts. Recording donations by purpose where the donor has set one, documents for in kind assistance, and the tax consequences of payments to individuals. Charitable organisations also face a cap on administrative expenses.
Grants by project. Separate analytics for each grant, allocation of shared costs, exchange differences, balances at period end. Without this, grant accounting by project has to be rebuilt before every donor report.
The report on the use of income of a non-profit organisation. An annual return to the tax authority showing what the income was spent on.
Donor reporting. A financial report in the donor’s format and currency, reconciled to the accounting records. The tax records and the donor report must agree.
Payroll and HR. Personal income tax, military levy, social contribution and timesheets, especially when one person works on several projects.
Military registration. If the organisation has employees, it keeps military registration records and appoints a person responsible for them.

Signs the current arrangement is not working

Reports are filed on the last day or late, and the taxpayer’s online account holds letters and requests that nobody has answered.
Asked how much is left on each grant, the accountant needs several days to answer.
The donor financial report is prepared separately from the books and does not agree with them.
Project source documents are gathered only before the audit.
Databases, signature keys and access sit with one person, and without that person the organisation cannot file its reports.
The accountant has left, and the new one cannot work out what was done before.

If two or three of these apply, consider restoring the accounting records before changing accountants: a new person or firm can take over the books far more easily once the balances are confirmed.

What to ask a candidate or a firm

How many public associations and foundations do you keep the books for now, and which donors have you worked with?
How do you keep project accounting and allocate shared costs?
Who prepares the donor financial report, and how is it reconciled to the books?
How do you monitor non-profit status, and what do you check before the report on the use of income?
Who covers for you during leave or illness?
Where are the databases kept, and how are they handed over to us if we stop working together?
Which documents do we need to send you each month, and by when?
Will you support a project audit and answer the auditor’s questions?

Accounting in an NGO: what to read

Does an NGO with no income and no staff need an accountant

It does not need an accountant position, but it does need accounting and reporting. The annual financial statements and the report on the use of income are filed even with zero figures. The head can do this personally or hand it to an accountant under a service contract.

Can the director of a public association keep the books personally

Yes, the law allows the head of an organisation to keep the accounts personally. That is reasonable while there are few transactions, no staff and no grants. With the first grant or the first employee, the workload and the risk of mistakes rise noticeably.

Can the accountant be paid from grant funds

Yes, if the cost is in the project budget. If the accountant serves several projects, the cost is allocated between them under an approved method, for example by timesheet. Charging the full cost to each project is not allowed: the donor will treat it as double funding.

Which is better for a foundation with one grant: a freelancer or a firm

It depends on the grant terms. If the donor requires a project audit, reporting in foreign currency and checks cost allocation, experience in donor accounting specifically and the availability of cover matter more. If the grant is small and short, an experienced freelancer may be enough.

How to change accountants without losing anything

Obtain from the previous accountant the databases, trial balances, copies of filed reports and all access, sign a handover act and reconcile the balances at the handover date. If the balances cannot be confirmed, the records are restored first, and only then does the new accountant take over the current period.

If you are choosing an accountant

MK Audit has kept the books of public associations and charitable foundations and audited their projects since 2000, so we know what a donor and the tax authority will ask to see in the records. Tell us how many grants, employees and monthly transactions you have, and we will say which option suits you. The cost depends on the volume of transactions and the number of projects and employees. We send a proposal once we have seen the task.