Accounting software: audits and lawsuits and floods, oh my!
Ask an accountant to say which is worse, the annual audit, a fire,
or a lawsuit and the response will be reminiscent of the old Jack Benny
joke “Your money or your life?”–“I’m thinking,
I’m thinking …” Each is disruptive in its own way. The audit
is often self-inflicted and has the potential to be painful. A fire or
other emergency takes time to recover and return to
legal action involving finances can quickly expand into fishing
expeditions that take up way too much time and increase risk.
Financial records are part of the institutional memory of an
organization. Carefully recorded transactions are the ultimate proof
that grant funds were Spent within the guidelines of the award or that
deposits were made promptly and accurately. Accounting software is the
backbone of a good system. It is the system of record for every
transaction, as well as the primary tool (and reference manual) for
staff as they do their jobs.
Sophisticated general and fund accounting software applications are
capable of enforcing
policies and procedures
to the point that common
errors are almost impossible to make. A journal entry might not be
correct, but it is at least reasonable.
Accounting software is so essential to the daily operations of
financial functions that a backup strategy is part of every good
implementation. Most organizations can easily recover from a disk
failure or server crash via a tape or
provider. But while
the core accounting data is safe, there is a larger question of whether
it is sufficient for the annual audit or other close examinations.
Not only are data losses and other disasters unavoidable, they are
also unpredictable in size and frequency. A storm that can level a
building might be a one-in-50-year occurrence, while a
adj. leak·i·er, leak·i·est
Permitting leaks or leakage:
flood the file room after every big rain. Likewise, while the accounting
data can be available at a remote site in a few minutes, supporting
documents such as purchase orders, pledge agreements, and grant
contracts–all of those things that prove that the underlying debit or
credit was properly approved and executed–might be inaccessible or even
Going forward, new paperwork will accompany new requests and the
accounting process can continue. Lost documentation can impede that most
inevitable of–if not disasters, at least travails–the annual audit. To
be able to offer an opinion about the accuracy of an agency’s
books, the auditor is required to verify not only the transaction itself
but also the supporting documentation to verify that the right person
authorized the transaction and that it complies with policies.
In the same vein, not having access to those same supporting
documents can slow down or
intr. & tr.v. de·railed, de·rail·ing, de·rails
1. To run or cause to run off the rails.
discovery in the event of a legal
action that might, even
1. Of, relating to, or moving along or in the direction of a tangent.
2. Merely touching or slightly connected.
, involve your organization. Not
being able to produce a requested document doesn’t mean that
you’re guilty of any wrong doing, but it certainly can’t prove
that you and your staff acted appropriately. There can always be that
that you’ve got something to hide.
1. As stated or indicated by; on the authority of:
2. In keeping with:
Heather Burton, director of product marketing at
software publisher Sage in Austin, Texas, “You rely on your
accounting software to do the math, to make sure that the journal
entries balance and numbers can’t be changed after a period closes.
It’s the documentation–the invoices, receipts, and approvals–that
create the audit trail. Missing or suspicious documents mean trouble.
It’s about people using the software well within a good policy
But even without fires or floods, many organizations have
difficulty adequately managing workflows, approvals, and the underlying
documentation. Manual filing systems can be inconsistent, particularly
if staff members don’t stay in that role for very long. Once the
filing cabinets in the office are full, documents are boxed and sent to
a storage closet or offsite location. If there’s a good index of
what’s where, document retrieval can be slow but effective. The
less accurate the index, the greater the frustration level as one
useless box goes back and another is brought out of storage.
The sheer volume of paperwork has become an issue for many
organizations. “What I’ve seen evolve over the past 20 years
is the importance of documentation. We’ve always been papered to
death, but today it’s more important to be able to find a document,
whether it is for legal and/or audit purposes,” said Linda Berseth,
of accounting software publisher
GMS Guild Management System
GMS General Medical Services
GMS Global Management System
GMS GroupWise Mobile Server
Md. “It’s more important to be able to find supporting
documents quickly today.”
Into this realm of tree-killing paper comes document imaging.
Imaging, also called scanning, is essentially
process whereby written or printed matter is directly copied by photographic techniques. Generally, photocopying is practical when just a few copies of an original are needed. When many copies are required, printing processes are more economical.
disk. Once in a digital format the document can be stored securely
anywhere, including a local drive, the agency network, or
in the cloud
Access can be strictly controlled and retrieval of a specific document
can be almost instantaneous.
According to Tommy Benston, client executive and director of
business partnerships at purchasing and invoice processing software
provider Verian in Charlotte, N.C., getting started is easy. “I
don’t think that the controller of a medium-sized
realizes how cheap a scanning system can cost–with a scanner and a
credit card you’re ready to go with a lot of online
However, scanning without a strategy is just automating chaos.
Moving piles of invoices, grants, and time sheets from desks and
windowsills to a computer desktop means that not finding things will
still happen, only faster, and it creates an increased risk of
see repetitive stress injury.
carpal tunnel syndrome (CTS)
Painful condition caused by repetitive stress to the wrist over time.
. In addition, from an audit or legal standpoint, being
able to produce the source document is only part of the problem. The
biggest issue is the
1. Place of origin; derivation.
2. Proof of authenticity or of past ownership. Used of art works and antiques.
of the document and the ability to prove
that it was authorized by the right person at the right time to do the
right thing. Managing the approval workflow turns out to be one of the
major features of more advanced document management systems.
For Andrew Payne, product line manager for Blackbaud in Charleston,
S.C., “there’s a software opportunity for policy
enforcement–to prove that spending in particular–supports a larger
framework that includes risk mitigation and adherence to plan.”
There is agreement that imaging can ensure a speedy and
comprehensive recovery from a disaster, but there are more far-reaching
benefits. According to Payne, “Paper is expensive to store, but
it’s also expensive to shuffle around the building.” As to
additional advantages, he noted, “If an organization implements a
tight spending policy that provides enforcement of their documents and
approval process, they can realize material reduction of associated
n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided.
(pushing paper around) and direct spending
benefits. Linking the two processes will typically result in far greater
benefit than implementation of either individual process.”
AUDITING THE AUDIT
Auditors hate surprises. Prior to the audit they will request
various schedules, balances, and documents. While on site they will
field test not only that the transactions balance but that they were
appropriately authorized and classified. A successful audit requires
fulfilling all requests in a way that demonstrates that financial
controls are in place and enforced.
The financial policy manual becomes the primary tool for managing
day-to-day functions as well as being one of the primary references for
the auditor. If everything the auditor requests can be easily produced
and it follows the written policies, the audit will not only go faster,
it will cost less because the auditor will spend less time searching and
Manual workflow and approvals can certainly work. But because
they’re enforced by consensus–by managers and staff
1. Not spoken:
adhering to standards–the probability for error or fraud are greater
and the auditor has to take more care in verification. The more evidence
that policies are consistently enforced, the more likely it is that the
auditor will be able to trust the numbers.
According to Payne: “The most pervasive problem that I’ve
observed is that most policy and procedures manuals, which are supposed
to be living documents, are instead just yellowing pages in a binder on
the shelf. Most organizations are addressing the emergency of the day
creating a scenario where manual policy enforcement is extremely
difficult, if not impossible, for the best management team to apply
One of the big advantages of electronic document management is that
the workflow and approval process is more rigorous. A good policy looks
at all possibilities, such as who can approve a transaction if the
primary person is sick or on vacation. The better accounting and
document management systems enforce these policies, as well as checking
to see that expenditures are within budget limits and that approved
vendors are not being side-stepped.
“If we are talking about off-policy spending or
n. the intentional, illegal use of the property or funds of another person for one’s own use or other unauthorized purpose, particularly by a public official, a trustee of a trust, an executor or administrator of a dead person’s estate, or by any
, a well designed system will reduce the likelihood of
those scenarios and enable management to respond accordingly. No system
is perfect, but system-managed enforcement will enable management to
shift from a reactive to proactive stance regarding spending. Those
applications designed for nonprofit entities can take enforcement a
level deeper–that is, spending restrictions related to specific grants
or donor restrictions can be enforced,” said Payne.
For David Abel, vice president of client services at accounting
software maker Serenic Software in Lakewood, Colo., “Clients often
perceive adding document imaging to the procurement process as being
cumbersome and electronic approvals as creating bottlenecks. However, an
automated system, implemented properly, will provide benefits that
substantially outweigh the added steps. Without these tools, it is
easier to lose the audit trail and avoid the approval chain since manual
processes can be easily circumvented.”
Another component of a good financial policy is making sure that
staff responsibilities don’t overlap. According to GMS’s
Berseth, “Division of duties is important as well as having
adequate monitoring of people producing checks or making deposits. For
example, make sure the person making the deposits is not the person in
n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business’ problems in paying
Plural of loaf1.
the plural of loaf1
& Fishes Community Pantry in Naperville, Ill.,
oversight and division of duties starts at the board and extends down
into financial operations.
“We have redundancies in place with multiple people looking at
the books, and I do reviews as well,” said Executive Director
Charles P. McLimans. “We have strong controls in place,
particularly in who has access to the accounting system. In addition,
our accounting firm sends a
who does our checks, bank
reconciliations, and essentially does an internal audit weekly. She is
basically looking for everything the auditor will look for and that
really speeds things up.”
Whether documents are stored in filing cabinets, in an independent
document management system, or connected to the accounting system, the
first priority should be the ability to retrieve the document and its
approval history from the transaction level on up to its role within a
grant or project. When supporting documentation is organized in a way
that speeds up internal as well as external audit functions, everything
else falls into place. In a manual environment, filing conventions
should facilitate retrieval and on- and off-site storage considerations.
In an electronic environment, permissions to view documents should
follow the policies and procedures guidelines and also facilitate
regular backups and a restore strategy that can get financial operations
running again after any level of data loss or business interruption.
TRUTH AND RECONCILIATION
The day-to-day operations of the accounting office are final
preparation for the audit and the ultimate guard against risk. While
accounting software can do the heavy lifting of journal entries and
calculating fund balances, delays in data entry or closing a month means
that the software can’t do its job, and the risks of honest
mistakes or even fraud increase. McLimans warned, “If you’re
not acknowledging your gifts on a timely basis, not having the board
involved and exercising their fiduciary responsibilities, there are
going to be problems.”
Berseth advocated for regular internal audits and up to date
reconciliations. “… don’t start reconciling two days before
the auditor gets there. Year end closing shouldn’t be very hard–if
your accounts” are clean month to month.
“Many nonprofits suffer from what we call MVOT,” said Jon
Biedermann, vice president of DonorPerfect Fundraising Software in
Horsham, Pa. “It means Multiple Versions of the Truth, in the sense
that what is recorded in the database does not match what is being
stored on paper. That’s why it’s important to make sure
document imaging and attachment is available in your accounting and
Benston noted that delaying data entry can cause other problems:
“We can see audit issues with accruals–the invoice comes into a
remote office and gets lost on a desk, then the month ends without it.
Next month that invoice comes in and an adjustment needs to be
made–multiply that by a few hundred transactions and it can be a
at Serenic, “Ignoring due
dates can be a total disaster, or thinking that you’re prepared but
not checking and reviewing, having
Legal documents certifying the right to employment of a minor or alien.
Noun 1. working papers
that are poorly
constructed, can cause problems and drive up your audit cost.”
For Lori Pennington, director of product management at accounting
Cougar Mountain Software
, it’s all
about the details. “You need to make sure the data are accurate
going in and that the audit trail is secure, and then getting the data
out, reporting on what has happened, and being able to look at each
functional area in detail,” she said.
Accounting staff needs to be able to verify that each transaction
was accurately recorded and classified, and that management and board
members can review activity at an appropriate level of detail.
The executive director might choose to look at some activities at a
summary level and others with a greater degree of detail. The audit
committee might choose just to look at the most general level of reports
quarterly. But both senior staff and board members should have an
opportunity to receive reports that drill down to any level of detail,
if not immediately, at least without excess time lags and directly from
the accounting system. Any reports that take too long to produce or that
have to be filtered through Excel or some other tool should be treated
Much of it comes down to motivating staff to use the tools
“If you’ve got a
1. Serving to dismiss.
2. Showing indifference or disregard:
attitude toward the audit or
toward your backup plan you will have problems. If you have a good
attitude you’re going to save money and time and the process will
go more smoothly,” said Johnston.
A good policies and procedures manual that exploits the best
features in the accounting software and utilizes best practices in
document storage and retrieval will go a long way in making the audit
faster and less expensive, as well as define the critical issues for a
disaster recovery plan. There is a third potential benefit: the ability
to respond to any legal inquiries.
While lawsuits can be rare, inquiries into financial record keeping
by funders and regulatory bodies can certainly feel like legal
discovery. “If you think about it, when you’re running your
nonprofit you’re thinking about the
n. pl. le·gal·i·ties
1. The state or quality of being legal; lawfulness.
2. Adherence to or observance of the law.
3. A requirement enjoined by law. Often used in the plural.
of each action and
that you can prove that everything you’ve done is proper. So being
able to document every step is important, and being able to recover from
a data loss or disruption is important, and if there are any legal
questions you’ve already done the work–you’re prepared to
answer any questions,” said Pennington.
However, one risk in legal discovery can be too much documentation.
If an organization does not have or
verb 1. , keep, maintain, respect, observe, be true, fulfil, obey, heed, keep to, abide by, be loyal, mind, be constant, be faithful
a strong document
destruction policy there is a chance a minor question can expand into a
, tribunal of the Roman Catholic Church established for the investigation of heresy.
The Medieval Inquisition
In the early Middle Ages investigation of heresy was a duty of the bishops.
where the existence of some documents and absence of
others can create suspicion and doubt. Corporations have long instituted
strict guidelines to guarantee that all documents scheduled for
destruction have indeed been destroyed and that every employee can
honestly say: “if it’s that old, it doesn’t exist
The one exception to document destruction is a legal hold–a
situation where the nonprofit has been notified that a legal inquiry may
be initiated and that any related documents should be preserved
indefinitely. After the question has been resolved, the documents may
have to be kept permanently or they may be destroyed, according to the
details of the matter.
Depending on the types of documents, retention can be between three
and seven years, although some types of documents, such as employment of
termination agreements, may be kept permanently. Most document retention
policies treat electronic documents, including scanned materials, as if
they were paper, and that they should be destroyed on schedule.
“Whether you have a file folder that you shred every seventh
year or some similar practice, you can extend that to disks and tapes.
If you haven’t done that you can be exposed to fishing expeditions.
You should be exploring highlevel wipe and other ways to eliminate old
data,” said Pennington. Online storage is so cheap and easy, it is
important to not fall into a “file and forget” practice and
neglect the full document life cycle.
However, the biggest legal risk in the financial office remains
internal fraud. This is where good policies that include multiple check
points and separation of duties can avoid
1. mischief or nonsense
2. trickery or deception [origin unknown]
temptations. Payne observed that “… eventually, system-managed
policy enforcement will become part of a given organization’s
culture–that is, employees will learn that system-managed activity will
produce a timely response. Said another way, those tempted to deviate
from policy will be less likely to do so as the policy is
their daily work life. As we all know, no system will deliver absolute
protection against bad behavior, but system managed policy enforcement
is by far the best tool presently at our disposal.”
Pennington added, “Different levels of security and not being
able to manipulate the audit trail make fraud much more difficult,
management is going to know that something’s wrong much
BACKUP TO THE FUTURE
Accurate financials are the cornerstone of a well run nonprofit.
Without them, public trust is eroded and future support is in doubt.
Part of the responsibility for accuracy is ensuring that all of the
roles and responsibilities are enforced and that every transaction has
been approved and conforms to established guidelines and that supporting
documentation is available for every internal and external inquiry.
“When all of the manual and electronic parts are working together
not only are the financials accurate, but it’s also easier to
prepare not only for the annual audit but for any kind of disruption,
from a minor data loss due to a hard disk failure to a catastrophe that
may require the relocation of the entire office” says Sage’s
Paper documentation is fragile in that it is expensive to duplicate
and store; but is also not going away anytime soon. While hard numbers
are hard to come by, industry insiders routinely estimate that 20
percent of smaller nonprofits and perhaps 40 percent of larger
nonprofits have made significant progress with document imaging systems
and electronic approval processes. These same experts also agree that
these systems will become more prevalent in the future.
for any nonprofit should be a secure backup and
business recovery strategy that includes online or off-site backups of
all accounting data and related scanned documents. While this should be
a no-brainer, it’s surprising how many agencies don’t know how
to revert to a previous version of their
. Even when the
software resides entirely in the clouds, there should be a plan in place
to deal with any related business disruption, including the Internet
connection and phone system going down for a period of time.
Biedermann added, ‘A lot of nonprofits think that by
outsourcing their software and systems to the cloud, that they are 100
percent protected. This is simply not true. You are only protected to
the extent that you have policies and procedures in place–ahead of
time–that deal with the very real chance of a local disaster, simple
, or even a rogue user with unrestricted access
Business interruption planning will naturally include questions of
document management, which will create new opportunities as more paper
becomes digital or, even more likely, never exists as paper in the first
place. As long as the document management strategy is consistent will
the overall policies and procedures and can integrate at an appropriate
level with the accounting software, there will be a net savings in cost
and improvements in accuracy–and likely more money left over for
There are many accounting software packages employed in the
nonprofit world, Below are some of the more prominent applications.
AccuFund Accounting Suite Standard
Single-user: $2,995 three users: $6,495; add $895 for each
AccuFund Accounting Suite Professional
Single-user: $6,595: three users: $8,995; add $1,195 for each
Agilon Business Financials
Starts at $27,000 for 1 to 4 users
Starts at $42,000 for 5 to 10 users
The Financial Edge, version 7.8
Accounting models start at $2,995 for single user; $6,995 for
Subscription pricing starting at $299 per month for single user;
$375 per year
Cougar Mountain Software
Professional 2012 FUND
Single user $808; multi-user $3,628
CMS Professional 2012 FUND Suite
Single user $2,570; multi-user $6,411
CMS Professional 2012 FUND Revenue Center
Single user $1,450; multi-user $1,752
Standard module $714 plus $295 for each
Premium module $1,194 plus $295 for each additional user
CYMAIV Not-For-Profit Edition
Starts at $645 per module
Typical 5 User System with Grant Tracking: $5,800
FUND E-Z Development Corp.
FUND E-Z Nonprofit Accounting
Single user $1,995; each additional user approximately $500
FUND E-Z Nonprofit Accounting (Pro add-on) $1,495
Executive Data Systems
NonProfit Starter Kit
Single-user $500; unlimited $800
Fund Accounting Software Series
Single user $1,000; unlimited $1,500
GMS Accounting and Financial Management/Reporting System One to two
version) $5,400; three to four users $7,500;
five or more users $8,625. For
version, One to two users
$6,900, three to four users $9,000, for five or more users $10,125.
License costs additional $35 per month per user.
Revolving Loan Servicing System One to two users (Microsoft Access
version) $2,475; three to four users $2,850; five or more users $3,225.
For SQL server users, one to two users $3,225; three to four users
$3,600; five or more users $3,975 License costs additional $35 per month
per user. 800-933-3501 www.gmsactg.com
Pricing starts at $400/month
tr.v. in·tu·it·ed, in·tu·it·ing, in·tu·its Usage Problem
To know intuitively.
[Back-formation from intuition.
Quickbooks Premier for Nonprofits 2012
Single user $399.95; two users $749.95, three users $999.95
Quickbooks Enterprise Solutions for Nonprofits 12.0
For new users: Rye users $3,000; ten users $5,000; up to 30 users
For existing users: Five users $2.400; ten users $4,000; up to 30
Open Systems Inc.
TRAVERSE for Not-for-Profit
Starts at $1,500 per application and $500 for each additional user.
third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere.
Sage Fund Accounting
Single user starts at $2,995
Sage North America
Sage Peachtree Premium Accounting for Nonprofits
Single user $499,99
Five users $1,199,99
Starts at $3,500 per user for basic Business
Essentials suite to $6,500 per user for Advanced
Serenic Navigator Online saaS
Starts at $165 per user/month
Tim Mills-Groninger is a consultant to the federal
Science and Technology Directorate working on
integrating nonprofits into disaster recovery planning.
Document Retention and Destruction Policy
) makes it a crime to intentionally
manipulate or destroy any document to interfere with any official
proceeding. While only a few elements of SOX apply to nonprofit
organizations, adopting and adhering to a document retention schedule
has become a best practice.
There are many templates available online, but it is important to
review a draft policy with an attorney familiar with state law and any
specific requirements for your type of agency. Once a policy is place,
make sure that all effected staff members are trained and that there are
periodic reviews to insure compliance.
These suggestions are the most important areas and documents.
Documents not listed, but similar to those included, should be treated
as if they were the same class. Electronic and paper-based files should
be treated the same and destroyed on schedule.
Any documents pertinent to any legal or related inquiry should be
removed from the destruction schedule and kept separate until the matter
is resolved. However, staff should never hold back documents because
they have a ”
1. An intuitive feeling or a premonition:
2. A hump.
3. A lump or chunk:
” that the documents will be needed later.
Accident Reports and Worker's Compensation 5 years Records Acknowledgment Letters 2 years Annual Audits and Financial Statements Permanent Annual Reports to Secretary of State/ Permanent Attorney General Appraisals Permanent Articles of Incorporation Permanent Bank Deposit Slips 7 years Bank Statement and Reconciliation 7 years Bylaws Permanent Board Meeting and Board Committee Minutes Permanent Board Policies/Resolutions Permanent Business Expense Records 7 years Cash Receipts 3 years Check Registers 7 years Contracts 7 years after completion or expiration Construction Documents Permanent Copyright Registrations Permanent Correspondence (general) 3 years Corporate Records Retention Period Credit Card Receipts 3 years Depreciation Schedules Permanent Donor Records Permanent Earnings Records 7 years Electronic Fund Transfer Documents 7 years Employment Applications 3 years Employment and Termination Agreements Permanent Environmental Studies Permanent Fixed Asset Records Permanent Garnishment Records 7 years General Contracts 3 years after completion/ termination General Ledgers 7 years Grant Applications and Contracts 7 years after completion/ termination 1-9 Forms 3 years after termination Insurance Policies Permanent Invoices 7 years IRS Application for Tax-Exempt Permanent Status (Form 1023) IRS Determination Letter Permanent IRS Form 990 Tax Returns Permanent IRS Form 1099 7 years Journal Entries 7 years Leases 6 years after termination/ expiration OSHA Documents 5 years Payroll and Employment Tax Returns Payroll Registers Permanent Payroll Tax Returns 7 years Petty Cash Vouchers 3 years Real Estate Documents Permanent Records Relating to Promotion, 7 years after Demotion or Discharge termination Retirement and Pension Plan Documents Permanent Salary Schedules 5 years Sales Records (books) 5 years State Sales Tax Exemption Letter Permanent State Unemployment Tax Records Permanent Stock and Bond Records Permanent Time Cards/Time Sheets 2 years Trademark Registrations Permanent W-2 Statements 7 years