Fund Accounting & Payroll: Integration Pays

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Labor costs are a big issue for nonprofits; so is a smoother data flow.

By Richard McCausland

With nonprofits, almost all payrolls are customized in some way. They just don’t have straight time,” declares Linda O’Neal, manager of Finley & Cook, a CPA practice headquartered in Shawnee, Okla.

Partner Insights

NFPs Are Slow to Put on SOX

Amid expectations that the Sarbanes-Oxley Act (SOX) will eventually influence the reporting procedures employed by not-for-profits, nearly 80 percent of NFP respondents to a recent survey indicated that their organization has not yet made any changes to governance policies.

SOX, which applies only to public companies, stipulates that chief executive officers and chief financial officers must personally certify the accuracy of financial statements and the effectiveness of internal controls. It also holds that independent directors must evaluate management’s compliance efforts. According to the 2003 Grant Thornton National Board Governance Survey for Not-for-Profit Organizations, “It is expected, however, that over time, all organizations will measure their financial governance policies against Sarbanes-Oxley.”

Of the 20 percent of respondents who have made organizational changes, 16 percent created an audit committee charter; 11 percent instituted a “best practices” for board governance; 20 percent developed organization-wide policies and procedures for internal controls; 17 percent wrote a code of ethics statement; 24 percent instituted a conflict of interest policy; and 12 percent indicated “other.”

“Surprisingly,” reports the survey, all organizations with less than $10 million in revenue said they have adopted or changed their conflict of interest policy. This compares with two-thirds of those with revenue greater than $10 million that reported making a change. Addressing this disparity, Jim Welsh, a Grant Thornton NFP practice partner in Philadelphia, comments, “Prior to Sarbanes-Oxley, some of the larger not-for-profit organizations may have already had the appropriate policies in place.”

The survey included responses from more than 300 NFP officials in 38 states and the District of Columbia.

What’s more, not-for-profits need to allocate payroll expenses, including benefits, to the various funding sources that are helping to subsidize a particular project. They also might need to track volunteer hours in order to receive in-kind matching funds, or in the case of healthcare facilities, capture the cost per patient, which can entail complex labor-hours calculations. These days, “Grantors are requiring a lot more cost reporting” to ensure funds are being spent wisely, notes O’Neal. That’s why she welcomes the extensive fund accounting/payroll integration that exists within the three packages handled by Finley & Cook: AccuFund, Intuit FundWare, and Serenic Navigator for Navision. With payroll a major expense—perhaps the major expense—for NFPs, “You have to have the ability to get back to the numbers to justify your grants,” says O’Neal.

Following controversies that have rocked at least two major nonprofits, the American Red Cross and the Nature Conservancy, expectations are high that the internal systems controls mandated for public companies by the Sarbanes-Oxley Act will eventually be required of NFPs as well. Nonprofits have so far largely refrained from adopting SOX-equivalent governance reforms (see sidebar, this page), but “Clearly the pressure is on,” says Doug Stevens, partner in the Washington, D.C. office of Grant Thornton.

He notes that there is draft legislation in Massachusetts and New York that would require NFPs to conduct SOX-like reviews and certifications. “Those are two states that tend to take the lead” in formulating regulatory policies, says Stevens. Fiscal accountability is on everyone’s mind. “For almost any organization dependent on outside revenue sources, that’s got to be a pretty high priority,” states Stevens.

It’s generally assumed that it’s easier to affirm data integrity when the business flow—from initiation of a transaction, through recording and processing, to reporting—all occur within an end-to-end system from a single vendor. That portends well for developers of integrated fund accounting and payroll/HR modules.

Several recent developments suggest that NFP software publishers have seen the writing on the wall.

  • In May, Serenic Software—whose Navigator fund accounting package integrates with Microsoft Business Solutions Navision Edition— agreed to merge with Vision HRM Software, headquartered in Edmonton, Ontario. Vision’s subsidiaries include Vision Pay, exclusive provider of payroll and HR functionality for Navision.
  • MBS itself recently acquired several NFP products from Encore Business Solutions. As a result, the just-released Great Plains 8.0 includes fund accounting, grant management, and encumbrance capabilities, all of which can integrate with Great Plains Payroll and HR modules. Great Plains also provides integration with leading payroll service providers such as ADP for organizations that prefer to outsource.
  • Last summer, Best Software Nonprofit & Government Solutions, headquartered in Austin, Texas, introduced integration between the Abra Suite HR/payroll offerings and the MIP Fund Accounting line. Payroll data can now flow automatically into the general ledger.
More than just regulatory pressures are driving all this activity.

Peter Stam, president of Needham, Mass.-based AccuFund, estimates that a 100-person organization might pay from $8,000 to $12,000 annually to a payroll outsourcing service. This compares to $4,000 to $5,000 for an AccuFund package that includes the Payroll module, installation services, and training, plus $1,000 a year for maintenance. “In half a year you get back the cost of bringing your payroll in-house,” says Stam.

The NISH Niche

Applied Business Services, an Open Systems reseller focused on nonprofits, has developed a payroll tracking package that complies with regulations laid down by NISH (formerly the National Industries for the Severely Handicapped).

Designed to interface with the Traverse payroll and A/R modules, the ABS Individual Tracking System meets the requirements for hiring persons that can be paid below minimum wage. The system includes piecework, hourly, and health and welfare payroll categories that meet NISH contract and Department of Labor standards. Client information—which includes level of disability, medications, and contact data—is provided in a central location. The software includes customer billing as well as program billing for attendance and training services.

NISH is the national nonprofit agency designated by the Committee for Purchase from People Who Are Blind or Severely Disabled to provide technical assistance to Community Rehabilitation Programs, including those interested in obtaining federal contracts under the Javits-Wagner-O’Day program.

“We’re trying to streamline the [NISH reporting] process for CRPs, particularly the smaller ones, says Maureen Williams, president of Gaithersburg, Md.-based ABS. Currently, “They’re doing this by hand, which is extremely painful.” The payroll tracking package, which will be priced at $1,000 to $2,000, will be made available to other Open Systems resellers.

Mt. Vernon-Lee Enterprise, a Springfield, Va.-based CRP, provides employment and support services for people with developmental disabilities in the northern Virginia area. For example, MVLE partners with local businesses to employ persons with disabilities to handle outsourced mailroom services.

NISH reporting can encompass “tons of people-tracking, as well as an awful lot of statistical tracking,” notes Brenda Walker, MVLE acting director of administration and finance. The organization was a beta tester for the ABS package. “It should result in far greater accuracy and more timely reports on an as-needed basis,” says Walker. Using the package means “we can begin to look at outcome measurements” more closely, thereby allowing MVLE to better match workers to jobs.

Link by Link
Mountain View, Calif.-based Intuit provides a migration path for NFPs. QuickBooks Premier Nonprofit Edition is suited for membership-based organizations with at least 75 percent unrestricted revenue and a less-than-$5 million operating budget. An Enterprise version is targeted to organizations with more than 14,500 donors, or who require more than five concurrent users. Any of these users can take advantage of QuickBooks Do-It-Yourself Payroll, Assisted Payroll, or the fully outsourced Complete Payroll, not to mention the QuickBooks Employee Organizer and HR Assistant.

Margie Lake, an accountant that works for a domestic violence shelter in Ashland, Ky., prefers using QuickBooks DIY Payroll in tandem with QB Premier Nonprofit. This combo makes it easier for her to set up class lists for different grants, and then when she does payroll by class reports, she can show what employees are funded by a particular grant.

For organizations with a larger number of funding sources, there’s Intuit FundWare. It’s best suited to endowments; organizations with more than $1 million operating budgets and more than 25 percent unrestricted revenue; or more than $5 million in operating budgets regardless of the funding sources; or with more than $250,000 in government grants.

FundWare Pro and Enterprise edition modules include Payroll, which allows the user to apply activity-based pay rates to employees, including piece rates. NFPs also can customize personnel information via user-defined fields, customize benefits and deductions, and post payroll activity to the Project/Grant Ledger module. Additional modules include the ADP to FundWare Import.

Continuing to hone the product, Intuit last month launched FundWare 7.30. It features a new navigational structure that is designed to get personnel up to speed faster, while shifting tasks to volunteers or non-accounting staff, with the express purpose of improving internal controls. For instance, a built-in account builder makes it easier to assign a program and budget to a new program manager.

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