Charities’ complex organisational structures mean automating their finance functions can bring a unique set of challenges. Do not fear, the cloud is here, says Darren Cran, COO at AccountsIQ in our article for ACCA’s Accounting and Business Magazine.
Full article which first appeared in ACCA's Accounting and Business Magazine May 2019:
One of the biggest challenges CFOs of charities face is finding a system that will comply with the application guidance for charity accounting, the SORP (Statement of Recommended Practice), at an affordable price.
It’s a tough pursuit, as non-profits face more complex accounting challenges than commercial operations of the same size due to the added transparency required in reporting. Some might also have overseas operations or trading entities. None of these scenarios makes for simple accounting.
Accounting software can be categorised as entry level, mid-sized or enterprise-wide. The bigger the company, the more complex and expensive the systems become. However, charities don’t always follow suit: smaller non-profits often need enterprise-wide functionality.
Until now, good accounting systems for charities have often proved unaffordable. But good news: digital-native accounting systems have arrived. Developed by software-as-a-service providers, these offer an ‘all in’ subscription, which includes licences, hosting, support, upgrades and even disaster recovery – for a monthly fee. This continues to create positive disruption in the market, as cloud apps present a formidable challenge to expensive, pre-cloud applications. Cloud accounting apps that simplify complexity have most certainly arrived, and they are budget-friendly.
Setting price aside, charities need to find software that meets their varied and complex needs. Not only must they report in line with the SORP; some also have complicated organisational set-ups such as trading entities and overseas operations.
Layers of analysis
The SORP lays out that charities must keep accruals accounts, providing detailed analysis of income and expenditure activities. Every activity and source of funds must be presented and disclosed. Charities will often carry out different activities, which they must track in their accounting system. Consequently, they find themselves in a more complex accounting world.
Accounting systems for charities over a certain size need several layers of analysis. In addition to GL codes, they might need further dimensions for cost centres, campaigns, projects or funding sources. This immediately takes the non-profit entity out of the ‘small systems’ bracket, where only two levels of analysis come as standard. Where charities need multiple layers of analysis across the whole chart of accounts, they will be drawn to systems with more sophisticated capabilities. Today, these more complex systems in the cloud have a much reduced cost of ownership.
Many charities today have multiple entities, centres or locations consolidated under one charity number – which makes it desirable to introduce consolidated reporting – and complex processes such as partial exemption from VAT. It is not unusual for one charity to handle zero-rated, exempt, and standard rate VAT under the same charity number.
Consolidated reporting is a headache for charities as it is for businesses: pre-cloud consolidation software was an expensive add-on. But by building in consolidation (incorporating multiple currencies), and automating this time-consuming process, charities can save precious resource.
Many charities hold sensitive data relating to vulnerable beneficiaries, so it’s fair to assume that cloud system security is front of mind. Cloud apps are extremely easy to configure, allowing you to define access permissions by user. On the subject of accessibility, due to the fact that many operatives are volunteers, the system must be light and simple to use, with an intuitive interface.
Cloud technology allows the organisation to automate, simplify and integrate its data processing. It provides a level of efficiency well suited to those needing to remain operationally light. Some of the key features that work for such users are as follows:
Capture. Today’s technologies, such as optical character recognition and advanced scanning, save lots of time by automating invoice capture. They are also used for processing expenses. Receipts can be scanned to your device and submitted online. Automated processes are particularly useful for charities. For example, an automated cash collection sheet tots up cash and banks it online while allocating it to its source in the chart of accounts. The same applies for integrated banking, expense capture, CRM and Gift Aid connectors.
Processing. Cloud accounting should also be able to automate the approval process using workflow, delivering approval documents and alerts to budget holders, who can instantly sign off via a mobile app. Payments, reconciliation and month-end journaling can also be automated.
Reporting. Cloud accounting software comes with pre-defined dashboards, which present automated reports in real time. Some allow you to build your own report or work freely between the software and Excel. This is particularly useful for charities that are multiple entities. For example, dioceses – as administrative divisions of the church – which comprise a number of local parishes, can use cloud software for both consolidated accounting (yet each individual parish can operate quite independently) while centrally splitting common costs.
Integration. Integrating applications in the cloud is achievable and quite simple to do. Many charities integrate their accounting platform with front-of-house, point-of-sale and fundraising systems. Regarding banking, artificial intelligence allows the system to memorise historic posting rules, which means charities can automate transaction processing. Bringing logic into integration is where the real magic solves unique pain points for non-profit organisations.
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