Posts tagged with "cost allocation"

Why your Nonprofit should consider using Nonprofit Accounting Software?

Why your Nonprofit should consider using Nonprofit Accounting Software?

By Jim Simpson, CPA and director, Financial Technologies & Management

Your organization like every other nonprofit is feeling the pressure to deliver more transparency. The demand for more timely information is coming from a multitude of interested parties: board members, major donors, potential funders, and watch dog organizations.

The goal of transparency can’t be easily accomplished without sound nonprofit accounting software-financial reporting is the foundation upon which transparency is achieved.

As the number of nonprofits have proliferated, accounting software is more tailored and can help manage these complexities. But taking the time to select the right software for your nonprofit is critical.

Before your purchase, start with a software evaluation and assessment to see if you’re a good candidate for nonprofit accounting software. The software evaluation and assessment will review your current system to determine its level or utilization and functionality. It is probably a good idea to perform a software evaluation any time there is a major change within the organization either positive or negative.

Here are eight reasons Nonprofit’s should consider Nonprofit Accounting Software.

  1. Flexible report writer
  2. Grants Management capability
  3. Budget Management capability
  4. Cost-allocation functionality
  5. Strong audit trails
  6. Integration with payroll, fundraising, and other applications
  7. Expanded capabilities as organization grows
  8. Various financial segment or element tracking to include funding sources, programs, projects, locations, and other essential financial information.

Here are features and functionality of the software that can provide optimum efficiency.

The flexible report writer allows you to use the accounting software to meet the internal and external complex reporting requirements. Generating reports should be able to be varied to meet the board, program, and funder reporting requirements and easily modified to meet the changing program and funder needs. Accounting Solutions for your Nonprofit

The grants management capability allows you to track the financial results for each grant, and report back to the funder in the required format, using one accounting system.  Grants management helps to insure maximum reimbursement and reconciliation to claims including encumbrances.

The budget management capability allows you to manage multiple budget versions for board approved version and projections.  Easily make budget revisions and maintain budget trail to track various revisions.   Budget management allows you to distribute annual budget monthly, quarterly, or annually.

Cost-allocation functionality allows you to easily allocate transactions on a real-time basis to multiple programs and funding sources all within the system. It should allow to you to pool various cost pools like facilities and overhead and allocate these to the various program and funding sources to provide a full-cost accounting.  Allows the cost allocation basis like hours worked to be modified on a regular basis for more accurate funding source and program accounting.

Strong audit trails keep track of what users are doing within the accounting system. The system should allow you to provide your annual auditors and program monitors with the financial information they need to meet their requirements and reduce the chances of fraud. Those involved in the finance function should have segregated permissions in the accounting system to protect the organization and its staff.  Strong audit controls include the ability for management to produce the audited financial statements.

As organizations look to be more efficient, it is important they look at software that allows them to integrate their critical functions like payroll, fundraising, human resources, and other areas. Nonprofit accounting software typically has this functionality built into its various modules or it allows for third party product integration. It is typically modular based, which allows your organization to add functions and capabilities as the organization grows and needs additional tools.

One of the most important reasons to look into nonprofit accounting software is the ability track financial information different ways.

For example, an organization may want to track its various funding sources to see what funds are available. It may want to track my various programs and projects to see what the programs costs are and how the organization is doing financially. It might have various locations and want to know how each location is doing. It might have donor and endowments restricted assets and wants to do a separate accounting for these donations to know what assets are left and make sure donor restrictions are met.

It is important, too, that staff remains efficient and effective, enabling them to focus on the long-term planning of the organization and not just keeping up with the day-to-day-accounting.

There are several purchase options that include direct purchase or subscription pricing to pay-as-you-go.

You will need to insure that you include software advisory services to include planning, implementing, and training. In some cases, you will need to also include data conversion and integration services.

Please contact us to help you determine if your organization will benefit from Nonprofit Accounting Software.  We will help you with your software evaluation and assessment project.

Effective Grants Management

In order to provide effective grants management, we need to make sure that we are performing bookkeeping at the grant level.  Our grant accounting needs to properly allocate costs to the grants while maximizing our grant reimbursement and avoiding any cost disallowance.

Our board members and related governance should be knowledgeable and informed about grant budgets and compliance requirements.  The board should stay knowledgeable of grant administration trends, developments, and regulations.  The board should understand what the organization is committed to and are Its programs delivering what is required.

The program staff needs to be involved in the data collection and reporting responsibilities including the proper reporting to the correct grant budget categories.  We need to establish and schedule future grant deadlines to insure timely grant report submission.  We would suggest sharing the grant agreement with the program staff to insure all grant requirements and deadlines are met.

Federal grants are governed by the super circular which is also referred to as the uniform grant guidance.   Auditors audit based on these requirements with the assumption that the nonprofit is knowledgeable and informed about this grant guidance.  Federal grants and awards are specifically identified and require a financial management system that identifies the source and application of federal funded activities.  Federal grants typically require written procedures around payment requirements, allowability of costs, procurement procedures, and standards of conduct.  For example, procurement procedures need to be written with good procurement records and follow the guidelines.

The grant audit requirements include the ability for management to prepare the Schedule of Federal Awards (SEFA) and it should be reconciled to the accounting records.  If the SEFA is a required part of the audited financial statements, the auditor will issue an opinion if the SEFA is fairly stated as a part of the audited financial statements.

Cost allocations are an integral part of effective grants management.  Effective cost allocations will allow to report and recover the fully loaded program costs to facilities and administrative costs.  Some organizations could benefit from documenting their cost allocation and federal programs may require a formal cost allocation plan.  Some acceptable methods of cost allocation would include hours worked for variable costs, and square footage for fixed costs like facilities.

Grant advance would be for grants that provide advanced funding.  It is important that you don’t spend these restricted funds on other activities and you can keep track of restricted expenditures and restricted grant cash balance.  You may want to track these advances by grant and as deferred revenue to show how much of the cash or accounts receivable balance is restricted.

Cost reimbursement for grants require you to submit reimbursement request timely to minimize cash flow delays.   Your grantors typically believe you have already paid these costs when you submit your reimbursement request.  You may want to obtain a line of credit for reimbursement delays and disclose the possible longer payment terms with your contractors and vendors.

The grant reporting needs include grant budgets which match grant budget line items with financial reporting.  Grant reporting should be able to report total grant spending including direct and indirect cost allocation.   Proper grant reporting requires a grant reconciliation to insure internal and external reports agree and that you are maximizing the reimbursement along with minimizing over and under grant spending.

Grant close out requires you met the compliance requirements and make any final grant budget revisions.  You will want to make sure you make any budget revisions in a timely manner to make sure you have time for any grant budget revision approval that is required.

Your accounting system should be able to meet your grantor reporting needs including their budget line items.   This typically requires segment tracking to track your grant as a separate fund including tracking by program.

Some examples of lack of effective grants management would include grant findings, monitoring visits, spending issues, and lack of a grant budget and related projections.

It is important that you continue to strive for effective grants management within your organization.  Our firm is here to help your organization perform more effective grants management so please let us know if we can be of assistance.