It was none too long ago that nearly all but the largest not-for-profit organizations thrived on simple off-the-shelf accounting systems.
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While not specific to the NFP industry, these generic systems have always been extremely popular due to their lower cost and ease of use. These more generic accounting systems are great for situations where reporting requirements are less specific and fund accounting is not required (or contemplated). In these environments, a generic accounting solution such as QuickBooks or Peachtree fills the bill quite nicely.
As an NFP's complexity and size increases, the need for accurate accounting increases. Typically, the larger nonprofit organizations are required by their funding sources to maintain their records by individual funds. In these situations, there is clearly a steady trend toward focusing on software written specifically for the nonprofit industry. This software almost always allows for a self-balancing chart of accounts, usually segregated by the type of funds being maintained.
Some of the key characteristics that the best packages share are as follows:
Technology platform. Any accounting system that isn't a 100 percent Windows interface should be examined closely. The market-leading brands of software feature a full 32-bit Windows-compatible operating system. If a system you are evaluating makes you endure character-based screens, it's a red flag that the program hasn't been keeping up with the times. Systems that don't continuously update their technology are more difficult for programmers to update and may fall into a maintenance mode where the core functionality is seldom expanded beyond features that may have been first introduced ten or more years ago.
One of the things to review is the system requirements. Make note of whether the software requires or strongly recommends the use of dedicated hardware. If the hardware requirements are beefier than what a typical Windows program would make use of, it's a good bet that the program under consideration may struggle to deliver acceptable speeds with anything but the latest and fastest computer hardware. While the cost of hardware may not be a consideration for all NFPs, it can be a major barrier to entry for smaller entities operating on a tight budget.
Add-on modules. The not-for-profit world is increasingly more sophisticated. To keep up with this growth, software vendors have introduced modules for their systems that perform tasks that previously may have been considered incidental to the core accounting function, yet still instrumental to the growth of the not-for-profit.
Modules such as student billing or endowment tracking are increasingly popular add-ons. When evaluating different software alternatives, be sure to inquire about the length of time that the add-on module has been available and in use by other NFPs like yours. If you are planning on integrating the module to your accounting so that adjusting journal entries and other financial transactions may pass, insist that any references you speak with have integrated their software in a similar manner. It is not uncommon to encounter reference sites that have successfully implemented only a small portion of the overall software that you are considering.
Active consultant program. Almost all modular accounting systems will require at least some consulting time to assist in set-up and implementation. The presence of at least one (preferably more) local consultant with more than two years' experience configuring and debugging your software is recommended. While many system features can be supported remotely, the ability to have a qualified consultant on-site in case of a crisis is invaluable.
A good consultant will also assist in trickier portions of the program, such as designing custom reports and exporting or importing data, as well as integrating the program with other third-party programs that might be in use. Check the references of anyone who you hire as a consultant. They should have at least two years' experience with the most recent version of your software.
Budgeting. Easy budget creation, revision, and management is critical to most organizations. Because different areas of a not-for-profit will have their own budgets, you should look for security that enables you to lock out unauthorized users from making changes to responsibility centers which they may not be in charge of. Many systems allow for unlimited budgets. The use of multiple budgets allows for various what-if scenarios to be analyzed.
Reporting. A good not-for-profit package will offer a custom report writer. The most commonly used is Crystal Reports, which allows for the ad-hoc creation of different reports based on nearly any field in your program's data tables. Additionally, you may use a financial report writer such as FRx, which can create presentation-quality and audit-ready financial statements. Larger organizations might use FRx to consolidate multiple entities into one reporting package. In a pinch, most systems will manage to create a Microsoft Excel-readable file that can be further manipulated for reporting purposes.
Fundraising, endowments. As you evaluate the accounting portion of the not-for-profit package, consider bringing your fundraising or endowment staff into the meetings. Most large accounting systems integrate with either their own fundraising software or popular third-party packages. The evaluation of accounting functionality is typically separate from an entity's fundraising needs. Therefore, it is advisable to bring in all personnel responsible for working in that area to review the fundraising component. Even if you are not considering upgrading an existing fundraising package, you should look to see whether the fundraising software is adequate should you decide to adopt it in future years.
Project and grant reporting. An often-overlooked requirement is that of tracking various projects and grants. Many times an organization will be gifted a sum of money on the condition that its disbursement is restricted to only certain types of expenses. This is where project and grant reporting comes into play. Instead of coding expenses into a general ledger account number, project and grant accounting allows you to specify an account number plus a project/grant number when making a disbursement or accounting entry.
This additional field removes the need to code one-time projects into an organization's chart of accounts, an effort that often clutters the financial picture with a huge chart of accounts containing hundreds of numbers that are no longer used.
Good grant reporting software allows for easy reporting on any fiscal period--even one that is not the fiscal period of the organization as a whole. This reporting on different periods is very often a donor requirement. So don't overlook its importance when reviewing systems.
Affordability. Smaller NFPs should inquire about the availability of entry-level versions. Some vendors offer a slightly stripped-down version of their products, hoping to attract a small, growing NFP that continuously upgrades through their products. The best solutions utilize the same databases, making conversions to their larger systems effortless and devoid of expensive data exporting and importing.
There are more than 20 different modules available from MIP, ranging in power from your standard set of general ledger, accounts payable, and accounts receivable all the way to fundraising, electronic requisitions, and allocations management.
MIP Fund Accounting Pro
Sage Nonprofit Solutions
Price: Starts at $2,995.
The Financial Edge
Price: Starts at $2,000.
Price: Standard Edition single user, server-based, $2,995; Professional Edition, single user, server-based $6,595.
Price: Pricing for modules range from $1,295 to $3,995.
Price: Ranges from $25,000 to $75,000.
Cougar Mountain Nonprofit Solutions
Price: Starts at $999.
A single-user version is available, allowing smaller NFPs to affordably grow into the larger multi-user versions without having to re-enter historical data. The availability of entry-level packages is a great reason for an organization to begin looking at the not-for-profit-specific software versus the more generic entry-level programs that are often purchased on a whim for a few hundred dollars in an office supply store, yet which may lack some essentials, like true fund accounting.
Flexibility is built into MIP right from the core functionality of the chart of accounts. There are virtually an unlimited number of accounts and segments that can be established due to the table-driven structure of MIP's general ledger. The program will allow the user to define segments and sizes, which then are used throughout all the modules. New to MIP Version 7 is the ability for users to select either the SQL or MSDE versions, and depending upon the needs of the individual organizations and the expected growth.