2007 Review of Not for Profit Accounting Systems

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From the October 2007 Issue

It’s no secret that the needs of nonprofit organizations differ tremendously from those of for-profit entities. Just how different are they? Take a look at the Office of Management and Budget (OMB) and read Circular No. A-122, where you can browse through the established Cost Principles for Nonprofit Organizations — all 48 pages.

Some of the issues the OMB circular addresses include Direct and Indirect Costs, Allocable Costs, and Indirect Allocable Costs criteria. Another issue nonprofits will soon have to address is the complete overhaul of IRS Form 990. Due to be implemented in 2008, the newly revised form will now require 15 schedules including detail on receivables from and payables to organizational officers, directors and trustees. Additionally, all non-cash contributions will need to be reported and itemized, and there will be a cap (5 percent) added to miscellaneous organizational expenses.

Because of these new requirements, it will be more important than ever to have a software system in place that performs the necessary functions that nonprofit organizations require. Such functions include a solid allocations module that allows you to allocate both direct and indirect costs, perform advanced calculations, and ensure compliance with the previously mentioned OMB cost principles.

A grant administration function can also prove important, allowing users to keep a solid history of all grants, manage funds, and control budgets and future expenses. An encumbrances module will allow users to adequately plan for all future expenditures, with the added ability to track and budget expenses properly. As well, a program’s AR capability must be able to sufficiently track all customers and donors, along with maintaining a solid transaction history. Fundraising capability is also key, particularly for larger nonprofits. For those that offer products for sale, solid inventory and sales order modules are imperative. And with the additional reporting requirements that are due to be implemented in 2008 with the revised IRS Form 990, it’s more important than ever that an organization’s software track, manage, and produce the reports and other data that will be required by the federal government.

Do all of the products reviewed here offer all of these functions? The easy answer would be no. But the more detailed answer is that many nonprofits, particularly those with specialized scope, require only a small portion of the functions that many of these products offer.

Here are the review categories for the 2007 review of not-for-profit products:

Ease of Use/Flexibility
It’s important to note that, generally, the more complex a program is, the more detailed and complex the system setup will be. Though not always the case, I tried to examine general determining factors such as company setup, data- entry screens and lookup options.

Modules/Scalability
Though the majority of the programs reviewed this year are modular in scope, I looked at system function in general, along with available modules, add-ons and any other third-party applications that may work in conjunction with the product. I also considered versions available. Does it offer a single-user system? Is it better for smaller companies? Will it be able to support a growing organization?

Features & Functionality
What does the program actually do? All of these products offer strong accounting functionality, but what makes this program stand out? What makes it irresistible to the nonprofit organization?

Reporting
Reporting functionality is important to all businesses, but it’s even more important to nonprofit organizations. Some organizations have been known to change software products simply based on reporting capability (or lack thereof).