Nonprofit Accounting Systems Versus Commercial Accounting Systems
Nonprofit Fund Accounting Systems Versus Commercial Accounting Systems
Commercial organizations have accounting software systems that measure product, division and company performance by profit and loss. Fund accounting systems for nonprofit organizations and governmental agencies (collectively referred to as 'nonprofits') must also measure incoming and outgoing monies, but they must do much more. Nonprofits have social and legal responsibilities that extend beyond spending their money wisely.
Fund accounting systems help them meet those responsibilities, in ways that commercial systems cannot, by:
- Keeping a formal budget as part of the organization's books (it may also be a legal document)
- Tracking and reporting accounting records separately for different funding sources, grants, departments, programs or functions (and being able to allocate expenses across these groupings)
- Tracking and reporting across different time periods (frequently not an annual basis), which often span multiple fiscal year
- Keeping funds separately, according to donor restrictions
- Measuring the success of fund raising events, programs or departments
- Tracking the ratio of overhead to program usage
- Tracking encumbrances; and,
- Producing specialized reports, including SFAS 117, for different internal and external audiences
Not only do nonprofits have to comply with the stringent reporting standards of the Financial and Governmental Accounting Standards Boards (FASB & GASB), but they must also respond to requests from many private and public granting agencies that require detailed reports in their own unique format.
Once nonprofits reach a certain size and have multiple funding sources, most of them find that commercial accounting software will not meet these special tracking and reporting requirements. Nonprofits find that attempting to use commercial accounting systems to perform these unique nonprofit accounting functions is impractical and difficult, as well as expensive to maintain. They often use spreadsheets to try to compensate for the software's missing functionality; however, spreadsheets can be very time-consuming, easily introduce reporting inaccuracies, and the accounting system becomes too complex for anyone to follow. Also, custom modifications or overlays to commercial software pose high up-front costs and are very expensive to maintain and support.
Nonprofits find that the only effective way to fulfill their unique accounting requirements is with a good Fund Accounting System, because it is developed specifically for their specialized tracking and reporting needs. To compare your nonprofit accounting needs to what software vendors offer, go to www.accountingsoftwaresuccess.com. We offer free comparison tools and implementation assistance.
About the Author
John S. Francis graduated with his MBA from Southern Illinois University- Carbondale in 1985. Since that time he has worked in various accounting professions including the Budget Director for the United Way of Greater St. Louis. From 1996 to 2009, he was founder and President of one of the country’s leading accounting software implementation firms. Acknowledged as a “Top 100 Technology Pacesetter” and a “Killer VAR” by Accounting Today magazine, and a “Top 100 Value Added Reseller” by Accounting Technology magazine, his firm successfully managed accounting system implementation and training engagements for thousands of clients worldwide. In 2009 he began working on accountingsoftwaresuccess.com, a site dedicated to assisting accounting professionals with their search, selection, implementation and use of accounting systems. The site contains several tools to assist accounting professionals with their accounting software research including an Accounting Software Selection Tool and an Accounting Software Articles Library.
