As the U.S. economy continues to recover from the recent recession, many nonprofit organizations are re-evaluating their budgets and regulating the money that comes in and out of the organization. With the general public still somewhat skeptical about the stewardship of funds (due to recent public accounting scandals in both the for-profit and nonprofit sectors), the government and funders have cracked down on nonprofits and implemented new reporting requirements to ensure greater accountability and financial transparency.
New Laws Impact Nonprofit Financial Reporting Requirements
While the Sarbanes-Oxley bill is well-known in the public sector, many nonprofits are unaware how the bill impacts their organization. Sarbanes-Oxley (as known as the American Competitiveness and Corporate Accountability Act) was passed by congress in 2002. Designed to tighten standards and increase operational oversight in corporations, the bill includes provisions for audits, disclosure, whistle blower protection, certified financial statements and rules on insider transactions, and proposed a new organization to enforce standards for audits of public companies.
While it primarily impacts publicly traded companies, the bill does include requirements for nonprofits to develop written policies related to the handling of employee complaints and the destruction of documents. Recently, several states (such as New York and California) have begun to apply other parts of the Sarbane-Oxley bill to the nonprofit sector. With so many states making changes to the way nonprofit organizations report upon their finances, it’s only a matter of time before all nonprofits must adhere to new (and extensive) reporting requirements.
The Need for Nonprofit Accounting Software
In response to these new and upcoming government regulations, nonprofits must be ready for audits and produce the required reports. Complying to these new regulations can be difficult if an organization is still relying on commercial accounting software to manage its nonprofit accounting needs. While many organizations invested in commercial accounting software due to its low costs, as organizations grow and expand, commercial accounting software no longer meets their needs.
Organizations that rely on commercial accounting software require more effort to adapt accounting processes and systems to meet these new requirements. This often results in organizations managing separate funds in spreadsheets and separate files and having to pull together disparate information for reporting requirements. This system is not logical for nonprofits. Not only does it require more staff to get the job done, but it also increases the risk of human error (a risk nonprofits cannot afford to take at this time).
While the thought of changing accounting systems may seem daunting, nonprofits will be better off because of it. Adopting the proper nonprofit accounting software will reduce the risk of errors, streamline accounting and administrative processes, enable organizations to track multiple funds within one system, and allow staff to easily pull data from all funds into a unified, comprehensive report. Nonprofit accounting software relieves the administrative reporting burdens, simplifies audit preparations and saves days on the reporting cycle.
In response to the new reporting requirements, vendors are making critical changes to nonprofit accounting software. Consider how nonprofit accounting software addresses the following financial reporting challenges:
- The Need for Accuracy
Accurate accounting of the use of funds received from grantors, major donors and small contributors has never been more critical. Nonprofit accounting software offers a flexible chart of accounts structure built specifically to handle the multiple funds tracking required by nonprofit organizations. Instead of adapting organizational processes and terminology to match commercial software limitations, nonprofit accounting software lets organizations customize the chart of accounts so that it fits of the way each organization works and satisfies their specific needs for fund tracking.
- Audit Capabilities
Nonprofit accounting software provides organizations with internal controls to limit access of data entry and inquiry to selected individuals. The software maintains extensive audit trails, allowing users to audit system access and track each entry, change or deletion of data by employees. It also contains other controls to prevent the deletion of critical audit trail data.
- Good Financial Management
Nonprofit accounting software has advanced budget and cost allocation features to help organizations ensure the maximization of their funds in the programs and services designed to support their mission. Furthermore, nonprofit accounting software is offered at a range of functions and prices, so nonprofits can find the best solution to fit their specific organization. By measuring their immediate needs against a range of functionality, nonprofits can make the best investment choice for their organization, and make each and every dollar count.