Software Survey: Help Needed
As nonprofit organizations struggle with changes in the economy and demands for greater accountability, they are looking to technology and better software to fill the breach.
In spite of the relative importance of nonprofits to American society, these organizations have suffered a continuing decline over the past three decades that left them ill-prepared for the recessionary pressures of the past few years. Both charitable giving and government funding have declined, and nonprofits find themselves struggling with using information to their advantage. In a bid to deal with these forces, nonprofits are increasingly looking to technology and software to help craft effective solutions. This year alone, it's estimated that some 39 percent of NFPs will invest in new technology in a bid to do more with less and to bolster confidence among their constituencies.
Executives of companies that publish accounting and management software for nonprofits generally agree that two trends are making themselves felt in 2013 -- the move to cloud-based computing, and the use of mobile technologies.
"Cloud computing adoption rates are still growing," said Serenic Software president and chief executive officer Randy Keith. "But it definitely has gained momentum and is here to stay as customers become more aware of benefits and more comfortable moving data outside of their firewalls and into the cloud."
"The use of cloud technologies may not yet be a reality," said Paul Lundquist, vice president of sales for Open Systems. "But it has become a discussion point. We have not seen a concerted move to the cloud by the nonprofits themselves, but we have seen a great interest among accountants who want to know that when they are ready to make that move, we will have products to accommodate them."
"Nonprofits lag other sectors in the adoption of new technologies," said Tim Goetz, CEO and co-founder of Aplos Software. "But if you want to know what trends will be major in a year or two in the NFP sector, you need only to look at the small-business marketplace today. There, cloud-based accounting and finance companies are becoming more widely adopted."
"The move to the cloud will also drive changes in how business applications are integrated with accounting," Goetz added. "We see member databases, donations, and other elements moving to become apps that will be integrated. There will be more 'app store' approaches to additional capabilities, rather than stand-alone applications."
"In the last year, the expectation and desire for mobile access to data entry and reporting has been a clear trend," said AccuFund president Peter Stam. "Just walk around any conference and look at what the participants are using. Users are carrying more tablets than PCs."
But mobility and the cloud are not the only technology trends that are emerging. "As nonprofits become more complex, the funder requests and restrictions are becoming more complex, and you can't let anything fall through the cracks," noted Blackbaud senior product marketing manager Jeff Sobers. "This is driving a need to use workflow automation, so that workflow is integrated with document management, and with approval processes."
"Workflow is a major trend," concurred Donald Cassady, president and CEO of Grant Management Systems. "Another and equally important trend is the integration of all of the software within the nonprofit. This trend has emerged strongly in the past 12 months, as executives look for software solutions that play well together."
"The difficulty in fundraising and getting donations are also affecting the technologies coming into use," added Intuit director of product management Gabriel Mendoza. "Gone are the days of pledge drives. Having the ability to accept mobile payments will be crucial to the health of nonprofits."
"Nonprofits will continue to take a hard look at the money and effort expended in past years on accounting system customizations and implementations," said Serenic's Keith. "Not only the initial costs of those systems, but the ongoing year-after-year maintenance costs. They will look for a simpler, effective solutions that still provide the transparency and accountability required by their funders and donors, but solutions that don't compete for resources against fulfilling their mission."
For many nonprofits, the focus is less on a new accounting system, or even the adoption of new technologies. Rather, it is on how the accounting system contributes to their ability to do more with less.
"The principals of fund accounting have not changed," said Joseph Scarano, CEO of Araize. "The issues that are being raised by our customers are related to stricter regulations due to cuts in government funding. Nonprofits need to demonstrate better accountability and program effectiveness to secure funding, whether it be from private or government sources. This puts additional pressure on management to be able to report on their financial activity."
"The theory and practice of fund accounting haven't changed in a thousand years," said Cassady of GMS. "What has changed is the result - the ability to extract the right information to make the nonprofit successful. There is no longer such a thing as a 'standard report' that meets all of the internal and external reporting requirements for fund accounting. Accountability and financial reports have to provide information at two different levels -- to the funding sources and auditor, because you have to keep them happy. And also to program directors, so they can run their programs and manage them within the context of the overall budgets."
"The move to big data is emerging for nonprofits, as it already has for the private business sectors," said Open Systems' Lundquist. "The ability to derive information from prospects and existing customers demands a higher level of customer relationship management, integrated tightly with the ability to [access] internal and external databases to enable nonprofits to create more members and donors."
"The increased competition for funds will require increased performance reporting requirements documenting the effectiveness of programs," agreed AccuFund's Stam. "Requiring systems to better capture and report performance measurements will become a priority. And any nonprofit that relies heavily on spreadsheets for their multiple reporting requirements will mean that they are substituting expensive labor for appropriate accounting/reporting systems."
"Effective record-keeping and document management are critical to the increasing demands for compliance and transparency in NFP operations," said Intuit's Mendoza. "A solid accounting system simplifies this record-keeping, making both audits and compliance reports easier to manage without expending more resources."
"We see three major trends in the management of nonprofits," said Jeff Sobers of Blackbaud. "First, the trends you see in the private sector today, especially big data - data mining and the collection of data. Second is tighter controls over funding from private and corporate foundations. These are today the loosest in terms of requirements, but will become more restrictive and will require more reporting in the year ahead. ... And third is auditor rotation. Mandatory auditor rotation is perhaps three years away, but will become a standard requirement, as it is in other sectors."
"When you have to do more with less, you have to be more accountable to the people who give you money," he added. "We are seeing the permeation of KPI and other metrics tools that enable nonprofits to blend financial and non-financial data to provide a more complete picture of the organization and its operations. Non-accounting staffs are talking more with accountants to tell a better story to their constituents. And accountants are not only more involved in strategic planning, they are involved earlier."
"The less you have to customize software, the less complicated support and implementation are going to be," said Serenic's Keith. "Organizations can simplify fund accounting solutions adoption by carefully considering which internal accounting processes they might tweak to allow out-of-the box solutions to work for them. Solutions can be made-to-fit. With an open mind, new software can be the impetus for evaluating current processes and tweaking practices in ways that are beneficial to the organization's mission."
LOOKING TO THE FUTURE
In the year ahead, the challenges faced by nonprofits -- declining revenues, demands for greater accountability, and the need for better and more integrated management tools -- are not going to go away. Responding to these needs, vendors to the sector are taking a variety of paths to help their accounting clients weather the storm. "Collaboration is a key to the coming year," said Serenic's Keith. "By offering accounting staff, program directors, and even volunteers easy access to the data they need -- via the Web or through organizational portals, such as Microsoft SharePoint -- nonprofits can more easily implement proactive monitoring of expenses against budgets, reduce overhead costs, maintain strong procurement controls, and increase staff in the field, rather than in the accounting office."
"There will be fewer smaller software vendors in the marketplace in the next three years," said Araize's Scarano. "There has been a consolidation in the market with mergers and acquisitions and other vendors going out of business."
"Accountants must enable access to data and be able to report on it," said Lundquist of Open Systems. "The general ledger is the center of any nonprofit, just as it is in any business. It all comes down to the financials. If you can't trust them, there is no accountability, and the nonprofit ultimately suffers from a loss of leadership and credibility."
"Accountants need to understand that their decisions when they are doing their day-to-day jobs and reports, right or wrong, must be defensible," said Cassady of GMS. "Recording transactions in the way it has always been done is no longer acceptable. You have to be able to answer the appropriate questions, and defend the answer. It is better to make a wrong decision and be able to explain why that decision was made, than to make a right decision and not know why. You have to able to, as we used to say in grade school, show your work."
"Accountants are important to the nonprofits they serve," said Sobers. "It is critical that those accountants take a leadership role to create a fiscally responsible nonprofit -- and prove it. I have a phrase that every accountant should take to heart -- 'Stewardship is doing your job well; accountability is being able to prove it.'"
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Serenic Navigator 2013