November 17, 2017
 
Do Your Homework Before Buying Accounting Software

By Rebeka Mazzone, CPA

Rebeka Mazzone
Because nonprofits are under more scrutiny than ever—from funders, government, clients, and members—they have little choice but to implement accounting and financial best practices.

While purchasing the best available accounting software package may sound like a good move, nonprofits need to do their homework first.

And that homework starts with understanding all of your reporting needs to ensure you develop the right chart of accounts to meet reporting needs.

More than any other factor, the chart of accounts determines how well—and how easily—a nonprofit manages its finances

Chart of Accounts May Be the Problem

Often, organizations don't have so much of a software problem, but what they really have is a problem with the way their chart of accounts is designed or with a lack of custom reports. With a properly designed chart of accounts, you can get the information you need to make good financial decisions. Without it, you'll likely flounder.

Basically, a chart of accounts is a listing of all accounts that are tracked by a single accounting system. Each account gets a unique identifier, typically an account number, and is classified as an asset, liability, equity, income, or expense. How these are broken down drives whether or not you are able to get meaningful information on grants, programs or funders.

When an accounting system lacks a properly defined chart of accounts, accounting staff often end up pulling information from the system and manually enters it into spreadsheets to create reports that management and board members need.

Not only is such an approach expensive in terms of staff time, but it is prone to inconsistency, error, and often leaves consumers of the information wondering how the information was derived. In addition, when personnel turn over, institutional memory goes out the door with them. An appropriately designed and documented system avoids these pitfalls.

Once a chart of accounts has been developed, and it will differ for every organization, accounting and finance staff training is essential. Training not only gets them comfortable with the software system, but it also lets them get the most from it. Training needs to be ongoing, rather than just at implementation. The most important questions arise after implementation.

Accounting life in nonprofits gets complicated when the organization needs to reconcile the numbers generated by its service activity with its own financial management.

For example, a Human Service Agency that manages homeless shelters and provides job training and educational services needs to not only track these revenues and expenses, but be able to generate reports that show management the bottom line net income of each program or activity, without the use of spreadsheets.

Because information may be captured in different systems, such as payroll or fundraising activity, data in these systems needs to be entered into your internal accounting system. Integration is much more cost effective than manual entry.

A properly designed integration will seamlessly integrate multiple systems, but it must include appropriate controls. For example, you want to prevent information from being deleted in on one system that has fed that data to another.

Rebeka Mazzone, Director of Business Development and Client Services for Rhode Island at Accounting Management Solutions, Inc., works with nonprofits on a full range of accounting and financial management issues. Call her at 401-374-3222 or email to rmazzone@amsolutions.net.

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