Proper nonprofit fund accounting requires the right software, tools and managers. While there is no “one size fits all” nonprofit fund accounting solution, there are clear winners when it comes to financial management for nonprofit organizations. The majority of nonprofit organizations start out using Quickbooks for their nonprofit fund accounting needs. With its easy to use interface, Quickbooks can accomplish the most basic bookkeeping tasks competently and provide out of the box reporting to meet nonprofit fund accounting requirements.
While Quickbooks may seem like the ideal solution for nonprofit organizations, there are many issues that arise with using Quickbooks as your main nonprofit fund accounting solution. As organizations begin to grow and their funding becomes more diversified, Quickbooks cannot provide the functionality they need. The system’s limitations often create more work for nonprofit organizations and result in numerous complicated workarounds to the system.
Whether you use the most basic version of Quickbooks or the most advanced, the issues remain the same. Take a look at some of the most compelling reasons to switch from Quickbooks to nonprofit fund accounting software:
- Weak Audit Trail
One of Quickbooks’ most popular functionalities is its ability to allow users to configure the system so that corrections can be made quickly and easily. While this may seem like the ideal solution, it is not. Making after-the-fact, unrecorded, undetectable changes to your posted accounting transactions is a red flag to auditors. While some editions allow you to tighten the security of the system, they are still not comparable to the security and audit trail features found in nonprofit fund accounting software. Many organizations find that the changes made to posted transactions are more commonly than not “accidental”. Employees log into the system and make a change to a transaction, not realizing they are altering data in a prior, closed period with no form of data backup.Security, control, and audit trails are a necessity for nonprofit fund accounting, and you want to invest in the right solution to protect your organization from mistakes – no matter how unintentional.
- Limited Chart of Accounts
While Quickbooks provides you with the ability to create the most basic general ledgers and pair them with Class designations as you see fit, it is more useful for small businesses with varying department structures than for nonprofit organizations. Nonprofits must segregate their expenses by function (program, management, fundraising and general) as well as track donations and assets by donor requirements and restrictions. While nonprofits could use “Class” for both of these designations, it could lead to complicated reporting and budgeting. Many nonprofit organizations evaluate their financial operations by more factors than what is dictated to them by donor requirements and having only one usable dimension beyond the basic general ledger account is limited at best.Many organizations respond to these limitations by pulling a portion of the accounting off of Quickbooks and maintaining it themselves in Excel spreadsheets. This can lead to numerous, complex spreadsheets for restricted funds, grant budgets and other mission critical data. Rather than continuing to rely on Quickbooks’ limited capabilities, these nonprofits would be better off investing in a nonprofit fund accounting solution with the capabilities to track this data automatically.
- Weak Budgeting Capabilities
Like in the chart of accounts situation above, many nonprofit organizations using Quickbooks often migrate their budget reporting to Excel. Whether it is to report on a fiscal year different from the current year or to create a report that Quickbooks is incapable of creating, it often becomes necessary to manage the entire budgeting process separately.As you can see, this will create a transparency issue. If organizations are unable to receive timely, comparable budget reports from their Quickbooks solution, the value of the system is lost. Manual data entry and the creation of budget reports in Excel takes time, wastes productivity and creates a risk for error. If you are having to manually manage your budgeting process, your organization should consider alternative nonprofit fund accounting solutions.
As you can see nonprofit fund accounting software is a better fit for nonprofit organizations. While it may seem like a substantial investment up-front, your long-term results will provide your organization with a huge pay-off.
Contact us today for help finding the perfect nonprofit fund accounting system for your organization.