Selecting the Right Accounting Technology for Nonprofits

By Paul Lundquist

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Widespread use of the Internet and Microsoft Office programs has made this less of a problem. Before the era of technology grants, most nonprofits depended on donations to fill their hardware and software needs, causing many to scrape by with loosely networked, rarely updated systems. Now, as technology grants have become more common and most hardware and software has become more affordable, this area is improving.

Additional reporting requirements and a conscious effort by many nonprofits to diversify their funding bases has fueled a need for more sophisticated accounting solutions, while at the same time demanding that providers offer solutions that are easy to use. This has caused many technology providers to create customized software packages tailored specifically to the needs of nonprofit organizations.

Nonprofit Accounting Solutions

MIP Fund Accounting, from Best Software (www.bestsoftware.com), is a good fit for mid- to large-sized nonprofits with annual operating budgets of $5 million to $15 million. There are three versions of the software—intro, pro, and advantage—which accommodate from one to 100 users, and provide feature and module restrictions.

MIP is an excellent fit for government organizations, as it provides a variety of specific modules to produce reports for government grants with industry rates. It also works well for larger entities with a number of separate divisions or departments, and contains “eRequisition,” an application that allows nonusers to enter and approve requisitions.

The encumbrance application allows the organization to establish planned expenditures for a given time period. Funds are encumbered prior to actual expenditure, which allows a nonprofit to accurately report available funds. As purchases are made, they are updated to actual expenses, and reduce the encumbrances.

Because this system is more sophisticated, it requires a longer setup time and more initial training. It has a process road-map menu that is well designed and easy to navigate, with powerful reporting capabilities. The chart of accounts is table driven, allowing accounts to grow and change as needed.

The Financial Edge, from Blackbaud, Inc. (www.blackbaud.com), offers some of the most sophisticated, leading-edge accounting technology available. It is best used in very large nonprofits, such as those with an annual operating budget of more than $15 million and a large staff.

This system offers a myriad of functions. Schools and national organizations that seek true integration with the popular fundraising and donation software Raiser’s Edge (also a Blackbaud product) would benefit from this system. Its tight integration allows for the drill-down of information from Financial Edge’s general ledger to the actual source in the Raiser’s Edge.

Financial Edge provides a number of business evaluation tools to analyze data, projects, and grants, with each tool sold in separate and complete modules. The analytical module, called Information Edge, allows a number of analyses and reports to be completed. A separate grant module is provided (rather than a segment of the chart of accounts), with a media tab that allows users to attach grant-award documents and correspondence.

Like any sophisticated system, Financial Edge is costly and requires more setup time and staff training than simpler systems. Its functionality is robust, however, and worth the extra investment and effort.

Traverse, from Open Systems (www.osas.com), is a good fit for nonprofit organizations operating with a budget of $5 million or less. Because Traverse is based on the familiar Microsoft Access with a SQL database, it is easier for the typical nonprofit to install and operate. To help smaller organizations, Traverse comes with templates for various required reports, and users can customize or modify report layouts and contents.

Traverse has an open structure to track diverse funding sources. For example, Traverse General Ledger has a flexible chart of accounts that handles up to seven segment categories and 30-character alphanumeric numbers to track funds, programs, grants, activities, departments, and divisions. Traverse also has a specific inventory system that can track sales, inventory, back orders, purchasing, and other retail-related functions, and includes an e-business shopping cart module (with source code) that allows nonprofits to set up e-commerce websites fairly easily.

Traverse was specifically developed for nonprofit organizations, but also complements their commercial products and can be integrated accordingly for nonprofits affiliated with for-profit entities.

Selecting Software

The first step in choosing software is to thoroughly research and analyze the organization’s requirements. Talk directly with vendors to make sure the system is well supported and can be customized for specific needs. The following are important issues to consider:

• Stay focused on products that have been specifically designed for the nonprofit sector and provide the functionality and capabilities required. Most commercial accounting packages do not easily adapt to the requirements of nonprofit organizations.
• Consider the effort required to learn the application. Training and ongoing support often cost more than the upfront cost of the package itself.
• Maximize the staff’s current skills. Choose a product that has the look and feel of products (e.g., Microsoft Office) that they are already familiar with.
• Accounting software with business analysis tools offers an extra benefit for nonprofits: the ability to understand their donor base. What is their giving history? What programs interest a particular donor? How is the donor related to other donors and organizations? These tools enable a nonprofit to provide as much personalization as possible.
• As government scrutiny of nonprofits has increased, organizations must be able to report their accounting position accurately. Make sure each potential vendor demonstrates how required reports are created, changed, or customized. Nonprofits should make sure their required reports are available without being created from scratch.
• From a large list of available nonprofit systems, narrow the selection down to no more than three. A spreadsheet can be used to compare features, available reports, ease of use, and cost.
• A budget-conscious organization should separate must-have features from nice-to-have features. Do not rule out a competitively priced solution that meets the functional requirements. When analyzing expenses, along with the time involved, always consider the long-term return on investment.