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Federated Organizations Need: Fund Accounting Balance

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    Federated Organizations Need: Fund Accounting Balance

    On August 11, 2017 by Liesa Malik

    For the nonprofit CFO, one of the great balancing acts of the new millennium is how to purchase and use accounting software that’s sophisticated enough to manage consolidation of multiple affiliate books, while that software remains friendly and easy enough to use for volunteers, bookkeepers, and accountants located at the different affiliate organizations.  More and more organizations face this dilemma as they mature and grow a national or international presence.

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    Surfaced by a study by the Harvard Business Review and McKinsey & Company in 2003, literally billions of dollars a year were being lost with the inefficiencies of federated organizations. The nonprofit sector took notice of this problem and consolidations of organizations like the Girl Scouts, United Way, and Planned Parenthood Federation of America began.


    While there are multiple nuances in the structure of federated nonprofits, the accounting system you only have needs to serve two distinct constituencies—the national headquarters, and the affiliate, franchise, or chapter offices, but this is not very easy.  Your vision may be a well-run federation of consistent accounting practices, but the reality of finding a solution that truly serves both your needs and the needs of your affiliates can keep you awake nights.

    From a headquarters’ perspective, you may think an enterprise level software is going to be your best tool.  The data capacity seems endless, there is a hand-holding implementation process that is outstanding if somewhat long (estimates can go as high as two years for such work), and the software will probably handle every nuance of your organization’s needs.  The drawback is its expense, and the software complexity will often leave you feeling challenged, especially if you lose a valued employee and have to go through months of training someone new.

    And that complexity is multiplied when your affiliates try to get into the system with their staff of volunteers and bookkeepers who don’t have the time to learn or consistently use your complex tool.

    With the affiliates comes a very different, yet still valuable point of view.  The team there is often only going to use accounting software for such tasks as bank account management, donor receipts, and paying bills. A low-cost, easy-to-implement software with generalized accounting automation is probably their ideal of what an organization needs. Unfortunately, true fund accounting at the low end of software solutions is not really available, and there is also a concern for audit-compliancy, both in the software product and in the practices of the organization.


    Luckily, there is another option, and that is the mid-market product designed for fund accounting or a mid-market solution where fund accounting has been integrated by an industry solution developer to a larger GAAP compliant accounting software base.

    Although a product specializing in fund accounting at this level is terrific, it can be a bit pricey for the savvy CFO, especially if you’re trying to implement at tens or hundreds of locations.  Still, it’s always good to work with your software representative.  Often you can get a better price if you’re buying your software for a large number of users.  Be up front about whether your operations are single corporations with multiple locations or multiple corporations with a single headquarters that governs the use of trademarks, resources, etc. as this too will affect your pricing.

    If you would like to go with a vendor who offers a product that’s been upgraded to meet the needs of the fund accounting community, you can not only get a good price, but you can work with the developer to customize your solution to meet the needs of both headquarters and local affiliates.  Here are some things you can expect: 

    • Local set-up with an easy-to-use interface that “hides” unnecessary and unwanted features.

    • Employee time and expense available on a “limited user” basis to help keep the cost of your software solution in control.

    • Another great cost control is to opt into a complete Cloud-based solution where many of your IT costs are bundled into the base price, and you have no maintenance renewal fees each year, rather just your subscription fees.  This option is often priced on a per-user basis, so that you can decide from year to year how many users you’ll pay for.

    • Headquarters set-up with allocations, grant management, fixed assets and other financial management features available for a more complex dive into your accounts.

    The main thing to remember is to ask your software vendor if their solution is a low-end, enterprise, or mid-market solution.  They will most likely be open with you about this, as it shows you’re a CFO with a vision for your organization that is flexible, powerful, and priced to meet the needs of all.

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