Many people believe that non-profit organizations, or NPOs, are less complicated than commercial enterprises and, therefore, have little—if any—need for sophisticated, integrated ERP software. However, this isn’t true.
Yes, while NPOs are not typically involved with manufacturing or inventory management, they have to process payroll and purchase goods and services. NPOs do not have traditional customers or accounts receivable; they have large rosters of donors and “pledges” that must be managed and collected. Additionally, they must maintain extensive accounting records and report to stakeholders and external parties on the results of their operations from time to time.
When it comes to general accounting, especially project accounting, NPOs may be more complicated than commercial organizations.
Finally, their “not-for-profit” nature often equates to inadequate IT resources available to develop and maintain complex computer systems. Therefore, obtaining and integrating a non-profit ERP software solution is often the best way for an NPO to control and report on its operations.
What Does an NPO Need & How Can an ERP Meet Those Needs?
An NPO has some unique needs that often require robust ERP software instead of simple accounting software. That being said, the primary needs of an NPO fall into three basic areas. We will explore these below:
Integrity in Accounting
Typically, accounting for NPOs follows the rules and standards for “fund accounting,” which are pretty different from the guidelines that commercial enterprises must follow. The accounts of an NPO are grouped into various categories that capture funds from donations, grants, and outflows/expenditures related to the organization’s purpose.
The fund’s charter (or source), such as a government program or endowment, establishes the rules that govern the type of expenditure.
While an NPO does need general accounting software to support accounting processes, it may also require transactional financial functionality as a commercial enterprise. Many times, an NPO will have offices overseas or manage international projects. Therefore, they incur expenditures in foreign currency, which means they need the same multi-currency execution/reporting strategies with their transactions as commercial companies.
Additionally, an NPO may deal with different/multiple accounting periods. Commercial enterprises use a fiscal year accounting period; an NPO may need to utilize calendar year and fiscal year reporting.
Apart from the general accounting differences, an NPO often needs robust accounting capabilities. A commercial enterprise engages in projects that support their business mission—but NPOs fulfill their mission and become known by the general public through their projects. At any time, an NPO (even a small one) may have several projects generating transactions that need to be processed, recorded, and reported.
Visibility of Transactions
Aside from transparency, strict requirements governing the activities of an NPO create the need for visibility of transactions by a variety of attributes. These conditions demand a system that can “drill down” to examine and audit the complex transactions within a project.
NPO Reporting Requirements
The reporting requirements that NPOs face highlight their complexity. Typically, NPOs are required to prepare a statement of results based on operations and a notice of their fund balance. While these are similar to a commercial enterprise’s income statement and balance sheet, the format is different, complex, and usually generated with fewer staff resources.
Both NPOs and commercial enterprises must report to management and stakeholders/donors. However, external reporting is where NPOs experience the most complexity. They need to offer regular reporting to donors, tax authorities, and regulatory agencies—sometimes on a calendar year, fiscal year, or both. They may be required to close out projects at the end of the fiscal year, or they may move forward to the next.
As a result, an NPO needs a powerful ERP system to automate its processes and meet its reporting needs with minimal staff and IT infrastructure. They also need a tracking/accounting system to support traditional commercial accounting and “fund accounting.” Plus, software that can help with multi-currency transactions, cash management, collection, and donor rosters.
ERP Streamlining Non-Profits
The Cloud is perfect for NPOs, because there is minimal IT infrastructure needed, and consultants can set them up on a pay-as-you-go system. An NPO doesn’t have to break its budget to get good software. GoldFinch ERP can help! We have a variety of options that can help your non-profit today. Let’s talk today!
