by Ken Garen, CPA
Not-for-profit organizations find themselves in a very challenging position. Government and funding sources thrust extremely sophisticated reporting requirements upon them, yet budget and personnel constraints often hamper their ability to fulfill the requirements. The organization's very existence and their ability to move forward may depend upon being able to closely track expenditures and create unique reports required by government and funding sources in an accurate and timely manner.
These groups also have sophisticated accounting needs especially on the payroll side: employees who work on multiple projects for multiple funding sources during the same payroll period, whose labor must be divided among different cost centers. Throw in the overhead costs associated with the labor – Social Security, unemployment, workers comp, etc. – and they find that most software packages simply aren't set up to make the allocations. How do they meet these requirements and survive? Unfortunately, they may have to suffer through expensive and elaborate hoop jumping, or muddle through inaccurate statements. Neither is a good alternative.
Outsourcing Specific Functions May Help
Ideally, and depending on their size, the organization could outsource specific functions, such as their employee time clock to an Internet-based system. With no equipment to purchase as overhead, employee hours are accumulated automatically as employees input their time on specific projects. These systems also enable the payroll processor to provide exact labor distributions, which allow flexible payroll software to create general ledger entries in an uploadable form. This saves a significant amount of time and unneeded expense for the organization.
Familiarizing yourself with the scope, limitations and flexibility of software will help you to better serve those not-for-profits, which have extremely sophisticated reporting requirements. In most software, once a transaction is defined, modifying numbers or making adjustments is not possible. In well-designed flexible software, account numbers can be changed after-the-fact, reposted, and reports easily reworked with the results tailored to the reporting entity's specifications. When software is highly flexible, and allocations are traceable and accurate, auditors spend less time auditing, which will also hold costs down.
Discuss the Full Scope of Reporting Needs and Flexibility for Future Changes
A good auditing firm should communicate to a not-for-profit organization the specific format reports and statements that they need. Once an organization reaches a sufficient size (there's no magic budget amount or number of employees), they face accounting needs that make outsourcing much more attractive than trying to manage the work in-house.
Think of outsourcing along the same lines as legal advice. You really shouldn't act as your own attorney. Beyond the creation of checks and invoices, a not-for-profit should leave accounting functions like the creation of journal entries, the preparation of financial statements, and the task of keeping abreast of ever more complicated reporting requirements to trusted professionals.
Outsourcing financial and accounting systems to an accounting firm creates the necessary separation of duties that can be difficult to achieve in small organizations. True independence requires outsourcing to a different auditor to allow for separation of accounting and auditing functions.
To keep your costs predictable and low your software should demonstrate great flexibility and an airtight audit trail. Allocation of expenses to multiple departments or cost centers and customized reporting helps tremendously. Not-for-profits do have special accounting needs with after-the-fact changes being common. Flexible software will allow you to serve not-for-profit needs and move business forward.
About the author
Ken Garen, CPA, is the founder and president of Universal Business Computing Company, (UBCC), a software development firm of high-volume, high-productivity accounting and payroll solutions. Contact UBCC at email@example.com, or 800-762-8222.