Accountability will be the buzzword (and goal) for most organizations over the next several years. The worldwide slowdown in economies means each dollar earned not only must go farther, but it must be properly spent and reported in order for funding to continue next year.
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This makes a proper accounting system more vital than ever. If as a nonprofit organization you cannot properly classify your spending to donors and grantors, then there's a higher likelihood that funding won't re-appear in your next fiscal period.
If you're a nonprofit who has made due with regular debit and credit accounting software (aka off-the-shelf or shrink-wrapped accounting), then you may be relieved to learn that there's a whole world of software programs written entirely for the world of nonprofits.
When the amounts are small (and the economy healthy) the manner with which nonprofit organizations report their annual results is typically less rigid. There may not be any requirement to report on individual funds. When small numbers of grants are being tracked, adding new account codes each year to track one or two annual numbers may appear manageable.
Once your revenues grow, so will your reporting headaches. Now instead of reporting with only 20 general ledger accounts you're faced with 20 different funds-each with a lengthy set of their own account codes. As your organization grows it suddenly may be asked to use a nonprofit-specific accounting system as opposed to the for-profit system that it was using.
What makes a nonprofit system differ from a for profit system?
Self-balancing chart of accounts. Nonprofit software will always contain a feature to self-balance a set of books which belong to an individual fund. This means that if you have a restricted fund and make a journal entry (or pay an expense for) an unrestricted fund that the accounting software will automatically jump in and create a due to or due from adjusting journal entry.
When the amounts are small these types of entries are often manually applied by fledgling nonprofit agencies. As your volume of transactions climbs, so will the number of manual entries. Figure on an upper limit of about half a dozen funds (this could include project or grant tracking too) before you should invest in software that makes these inter-fund entries for you.
Able to report on grants with differing fiscal years. Usually one sure thing about different grants is they have their own reporting years. And the more grants that you have, the higher the likelihood that each will report on a different month. This is typically because the sources of grants will have their own reporting periods and may not adhere to a calendar year. Note that juggling grants may not be a problem when the number of financial reports are small.
However, once you are above a comfortable level of six to 12 grants then you will begin to lose the ability to manipulate these differing annual closings manually. Here's where the nonprofit accounting software can come in very handy. Each grant in a true industry-specific system will allow for a reporting period totally independent of the main entity. This is one of the top features that you'll want in a new nonprofit accounting system.n
Project and grant tracking that doesn't rely on a new set of general ledger accounts. The biggest mistake that bookkeepers and financial controllers of nonprofit organizations make is to ignore the growing need to report on specific grants or projects independent of the regular entity.
As the need for segregated project and grant reporting arises many financial staff think they've found the ideal solution by adding new accounts to their chart of accounts. This lets them hobble along for a few years until suddenly one day they realize that their account structure is out of control. What began as a manageable set of 100 account codes can easily grow to several thousands over the course of five or 10 years.
The "growing chart of accounts" problem can be eliminated by making use of project and grant tracking. Instead of birthing a new set of accounts for each project or grant to be tracked, you assign a separate project number to each general journal entry. This significantly reduces (and in many cases outright eliminates) the need for adding new accounts. Almost all of the modern accounting software offers this highly desirable feature.
Flexible budgeting. If you've been surviving up until now on plentiful funding and never have had to create a budget, the party's over! Going forward you'll need to have a budget process in place that allows not only for your current-year plan numbers, but you'll also want space to begin working on the next year numbers too. Several accounting systems include linkages to spreadsheet packages where you can read in your general ledger balances in real time and use that data for reporting. Most of the time you'll want to start fresh and perform a lot of manipulation on your planning balances. Look for a system with a spreadsheet-like interface which will make data entry simpler.
Customizable reporting. If a nonprofit accounting system doesn't have a custom report writer, run. Run very far away. There are so many different reports that funding sources can (and will) request that not having access to a customizable report writer will mean that you're spending hours (usually during your busy time) manually extracting data from certain financial reports and entering them in to a spreadsheet for custom reporting. Crystal Report Writer is a common off-the-shelf reporting tool that many systems will use. Still others create their own report writer. Though my preference is for a widely used report generator like Crystal, so long as you can access your company data you'll find the manual reporting and extracting of data will be reduced significantly.
Cash or accrual accounting. More and more nonprofit accounting is adhering to the accrual basis of accounting. Just like the for-profit rules, accrual accounting gives a truer picture of the overall financial health of an organization. There are times when funding sources may specify that what you report can only be actual expenditures. For those situations it's helpful to have access to a dual cash/accrual capability. Without any intervention on your part this capability will allow you to produce either cash or accrual reports. While the feature itself is usually a nice to have-if your million-dollar grant which demands cash basis accounting is riding on this feature-you'll be happy you investigated the availability when you research systems.
Purchases and requisitions with spending limits and approvals. Because almost all nonprofit organizations are working with budgets there usually is a system for issuing purchase orders. By definition a purchase order establishes a means for approving an expenditure. Even better is when the pending approvals (requisitions) can also be taken into consideration for reporting purposes.
When requisitions figure into the accounting (usually as an option on the reporting) you can get a clear picture of overall spending which includes money already sent outside the organization as well as money committed for certain expenses (requisitioned). A proper security system should define who has the right to spend money against certain projects, grants or funds, thus tightening accountability and lessening the possibility of deficit spending.
Before developing their complete nonprofit accounting system, the modules from AccuFund were originally designed to integrate with other software programs such as MIP, Great Plains, Kintera (FundWare) and HTE.
There are still several modules sold specifically to integrate to outside systems, however the bulk of the AccuFund power lies in its now complete set of integrated modules. With more than 20 different software modules, the AccuFund programs form a complete solution that require few if any outside programs to operate. The last version of the software improved the ability of the user to control the layout of data entry screens and beefed up integration in the Human Resources and Budget areas so that less non-integrated data entry was required.
The general ledger module is the workhorse of the system. With up to 255 separate alpha-numeric characters available for the account code you'll have a hard time running out of numbering schemes for your accounts. These general ledger codes can further be broken down to 99 separate segments if desired.
Generally the way the system is used to create a table of valid account codes (elements) and allow the full account number to be created on the fly. Multiple year-end closes can be performed here without fear of harm. You can also post entries to the future without the need to close out the current year's activity.
Larger nonprofit organizations with a need for tighter controls over purchasing can acquire the AccuFund Professional Edition. This edition separates out the typical duties encountered in a larger organization and gives you greater security rights to control who may authorize expenditures.