Selecting Your Nonprofit’s Accounting System – A Guide to Strong Financial Leadership, Pt. 7

As nonprofit accounting consultants, we frequently hear about the inefficiencies relating to a nonprofit’s accounting software. Namely, we hear grievances from finance directors who resort to using Excel more than their accounting system. They track grant expenses to budget, restrictions, and reconciliations. Also, they manually have to create financial statements each month outside of their accounting system.

Set aside the fact that it’s a painful process for them each month, there is also much more room for error when reports are manually created. One simple resolution is to let your accounting software do the work for you with the information in the system.

The bridge between your nonprofit’s accounting software and internal control

Another pain point we hear from finance directors is that they want a fund accounting software that can efficiently track grants to approved budgets. Similarly, they also want to track restrictions on a real-time basis. Putting in place a system that has these efficiencies allows finance directors to create accountability with program staff. The system also, simultaneously, helps directors manage the finances of their programs.

Last month, we talked about internal control policies, explaining how your accounting software should have effective internal controls. More specifically, these controls should not allow posting to prior periods and allow multi-user approval processes. Additionally, we discussed establishing notifications for actions that could place the nonprofit at risk. These notifications should detect alterations such as new vendors, changes to vendor banking information, chart of account changes, etc.

Selecting your nonprofit’s accounting system

There are several systems to choose from and the important thing is to choose what best fits your organization and addresses the challenges with your existing system. Here are some tips for those who are embarking on a search for a software replacement.

• Start by making a list of the current system challenges and inefficiencies in your department.
• Make sure the account structure has the ability to provide reporting on multiple data points. This includes grants, programs, and restrictions.
• Make sure the reporting in the system makes it easy to produce meaningful reports for all of your audiences and that you’re not forced to continue creating the documents in Excel each month.
• Use software that completes work for you and searches for software add-ons that enhance and improve workflows such as AP automation.
• Make sure your replacement has user security levels, useful audit trails and notifications for key changes made to the system.
• Determine your organization’s preferred deployment method: on a local server, or in a cloud environment.
• Does software have local support to assist in establishing the system, training and supporting the implementation efforts at your organization?

Replacing your nonprofit’s accounting system

If this has you thinking, it is time to take the next step and plan for our replacement package, then start your research. We suggest determining a possible replacement date and developing a budget item for the replaced system.

A new software purchase and implementation can be costly and time-consuming. Many software packages are available as a SaaS (Software as a Service) product, where you pay a monthly subscription fee and the software is centrally hosted. Depending on the size of your nonprofit, and number of users, this can start at $400 per month. This type of deployment decreases the upfront costs of purchasing and implementing locally housed software that could cost up to $40,000.

NFP Partners works closely in partnership with local nonprofit organizations to guide them through successful implementation and ensure continued success utilizing the Abila MIP Fund Accounting system. To learn more about how we can help, click here.

Happy planning,
Laura Jorstad
Managing Principal