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Nonprofit

Feb 27
0

Why Keeping Duplicate Records During Accounting System Implementation Is a Bad Idea

By | Accounting, Nonprofit | No Comments

Everyone is excited (or nervous) when word gets around that a new accounting system is being installed. Someone gets more nervous than others and decides to make a “shadow system” —a duplicate of the current accounting program. Perhaps they plan to keep the information on spreadsheets or in database files “just in case” the whole new system crashes. Or something like that.

The fear is real, and so is the problem. But let’s talk about a bigger problem: duplicate or shadow systems are just plain bad for accounting departments, and here’s why.

Don’t fear a new accounting system. Fear the repercussions of shadow accounting systems. Duplication is a bad thing when it comes to accounting and can lead to data inconsistencies, wasted resources, and accounting mistakes.

What Exactly Is Duplicate Data Entry and Why Does It Happen?

Duplicate data entry occurs when employees record the same financial transactions or information in both the new accounting system and an unofficial secondary source. They may keep a spreadsheet or continue to maintain the old system if it’s not sunsetted.

The problem is that it is maintaining a parallel financial universe. This parallel universe does not have the same controls or oversights as the new system. And it increases the risk that people may refer to this shady, parallel universe as the source of accounting truth rather than the new platform.

People create secondary systems for many reasons. Mostly, it’s fear of the unknown. Sure, a new accounting system sounds good, but it’s always a big leap of faith to try something new. To protect themselves against this fear of the unknown, they keep duplicate records. Poor change management, a rushed implementation of the new accounting system, inadequate training, and a lack of leadership buy-in also contribute to the fear of change, which inspires people to create duplicate systems and backups.

Why It’s a Problem You Can’t Ignore

It would be great if you could just chalk up the secondary system to so-and-so, who is always a worrywart, and go on with your day. But you can’t ignore it. Duplicate systems are problematic in many ways.

They create:

  • Data inconsistencies and errors, which can lead to misclassifications
  • Mistakes that compound over time because they aren’t corrected
  • No single, authoritative source of financial truth, which leads to more mistakes
  • Wasted time and resources—after all, the time spent updating the second system is wasted time!
  • Security and compliance risks—sensitive data may be stored in ways that anyone can access, leading to security nightmares
  • Poor decision-making because financial records are inconsistent

Duplicate Systems Are a Warning Sign

Duplicate or shadow systems are actually a warning sign of a deeper problem. They are a sign that the team is nervous about the new system implementation. To address the root of the problem, you must take a step back from “We need to get rid of the shadow system” and focus on “How did we get to this point in the first place?”

First, focus on the new system. Have you emphasized proper training so that everyone feels confident they can use the system and get the information that they need? Greater familiarity with the new accounting system may be more persuasive than anything else when it comes to getting staff to relinquish duplicate systems.

Ensure that the company’s leadership is part of the process. They must not only buy into the new system, but they must take the lead in using it. When the team sees that leadership is fully onboard, they will be more likely to use the new system too.

Lastly, be clear that you do not duplicate systems. No exceptions. Allowing exceptions weakens and undermines your position that the new system will be better than the old one.

Eliminate Duplicate Systems and Move on to the New

Duplicate systems can feel like a safety net during times of transition. Any transition to a new computer system, whether it’s the accounting system or a new storage system, can feel uncertain. But allowing shadow systems just sets up problems and reduces adoption of the new system. Get rid of the fear first, then ensure understanding and executive buy-in. These steps will go a long way to keep shadow systems away.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Feb 26
0

Internal Controls: Are You One Mistake Away from Disaster?

By | Accounting, Nonprofit | No Comments

Recently, an article asked the question, “Are you one mistake away from disaster?” It really struck us how accurate it is to ask that question. Yet few nonprofits do ask it of themselves.

Unfortunately, some learn the hard way that not having good internal controls does put them one mistake away from disaster. Your organization’s reputation could be on the line if something goes wrong. And losing the goodwill of the public (and your donors) is the first domino in a long line to fall should a mistake derail your organization’s carefully built goodwill.

Here’s how having solid internal controls can prevent one mistake from creating a disaster for your organization.

What Are Internal Controls?

Internal controls are the policies and procedures that guide how your organization does things, especially as they pertain to managing money. Good internal controls ensure transparency around financial dealings. They create checks and balances to make sure that everyone handling your organization’s finances is doing so appropriately.

Examples of Internal Controls for Nonprofit Organizations

Common internal controls may include:

  • Segregation of duties—separating who approves, records, and reconciles financial transactions
  • Monthly bank and credit card account reconciliations by someone who does not manage the cash or issue checks
  • Policies for handling cash, such as always having two people witness when cash is counted into or out of the safe
  • Written approval required before purchases over a certain dollar amount
  • Expense reimbursement policies
  • Limits on credit card expenses
  • Processes to approve new vendors
  • Time tracking, including timesheet approval by supervisors
  • Having an external CPA or auditing firm conduct an annual financial review

Your IT department should also have its own version of internal controls. This may include:

  • Limiting access to sensitive systems, such as payroll systems
  • Tracking permissions by user role and restricting access when appropriate
  • Encouraging strong passwords and frequent password changes

While having so many policies may feel onerous, they’re actually quite freeing. Knowing how to handle cash, who approves vendors, and how to ensure the security of the organization’s IT systems is critical and provides everyone with peace of mind.

What Happens Without Internal Controls?

Without internal controls, your organization is a disaster waiting to happen. People may be tempted to take shortcuts, such as allowing one person to count out petty cash. Petty cash can “disappear” in such situations. Allowing one person to sign checks leaves loopholes for theft. And not having an annual audit or financial review by an independent CPA may leave small mistakes on the books that can lead to bigger problems later if left uncorrected.

Steps to Take Now

It’s likely that you already have some internal controls in place but are lacking others. That’s typical of nonprofits, especially ones undergoing “growing pains.” 

Begin by reviewing your current internal controls. Where are the gaps? Some gaps are easy to fix, such as ensuring supervisors approve time sheets and limiting who can use the organization’s credit cards.

You may want to work with a consultant who can help you identify policy gaps and areas of concern. Because consultants work with many organizations, they know which areas are prone to problems.

Once you have internal controls in place, be sure to train your team on them. It is one thing to set down rules; it is another to make sure that everyone knows what they are. Ensure shared expectations of how and when the new internal controls should be followed.

Internal controls should not be seen as restrictive. When managed correctly, they are actually freeing, because they give you peace of mind that your organization has taken every step possible to protect itself from one mistake that can lead to disaster.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Feb 25
0

Risk Management Strategies for Forward-Thinking Nonprofit Organizations

By | Accounting, Nonprofit | No Comments

“Life is inherently risky. There is only one big risk you should avoid at all costs, and that is the risk of doing nothing.” This quote from motivational psychologist Denis Waitley captures our view on risk management.

Life—and business—is filled with risks. Both for-profit and non-profit organizations face risks every day.

Nonprofits face specific risks. The smart ones face these risks head-on, examining them from all angles and discussing risk mitigation strategies. Let’s look at five common risks nonprofits face and how thriving nonprofits address them.

Five Common Risks Faced by Nonprofits

Risks are categorized as internal or external. Internal risks are those that an organization faces from within, while external risks are those from outside the organization. We have selected five as representative examples for this article, but there are many, many more. Blackbaud has a longer piece on risks that may be worth reading if you’re curious about other risks organizations face.

Common risks nonprofits face every day include:

  1. Expense management (internal): Expense and cash flow management are critical to long-term success. Nonprofits with shaky accounting practices or the wrong technology supporting their accounting and financial analysis may find themselves struggling to maintain the margins they need to support their mission.
  2. Compliance (internal): Compliance with fund accounting best practices and nonprofit accounting guidelines is essential. Strict adherence to government, reporting, and fundraising laws is required. Failing to do so can result in the loss of tax-exempt status.
  3. Cybersecurity (internal): Cybersecurity threats have grown more sophisticated and frequent with the advent of AI, which makes it easier for criminals to attack at scale. Both external attacks and phishing expeditions are common, and nonprofits are a particularly appealing target for criminals. Most nonprofits have limited resources to address cybercrime and attacks, and criminals exploit this.
  4. Public perception (external): Nonprofits risk losing public goodwill due to marketing missteps and operational mistakes. For example, some nonprofits came under fire several years ago when their overhead costs seemed excessive to the public. Retaining public goodwill is crucial for success.
  5. Government changes (external): Each administration brings its own approach and direction to various issues, and this approach impacts funding. Whether you run a nonprofit dedicated to education, healthcare, environmental issues, or another cause, changes in funding availability that are dependent on legislation are always a risk.

How Nonprofits Prepare: A Risk Mitigation Plan

Life is risky – and so is business. How do thriving nonprofits prepare a risk mitigation plan that actually prepares for the worst but hopes for the best?

Preparedness is key to mitigating risk. Organizations that prepare, to the best of their ability, for potential risks are those that are in a better position to navigate the future. Such organizations take the following steps to prepare:

  1. Acknowledge the risks: Organizations should conduct risk assessments in all key areas, and work with other professionals, such as their auditing or accounting firm, insurance agent, and the like, to discuss possible risks and ways to offset them.
  2. Engage all stakeholders: Ask senior leaders to participate in this exercise.
  3. Conduct what-if scenarios: Discuss what-if scenarios and consider tabletop exercises, which allow participants to discuss and go through various scenarios for disaster planning. Go through potential situations and how to handle them as a team.
  4. Write emergency plans: Write down emergency plans and prepared responses after conducting what-if scenarios. Train your team on the plans too. Don’t just put them in a binder or computer file. Make sure everyone knows where they are and how to access them if needed.
  5. Review annually: Risk planning isn’t once and done. Review plans periodically to keep them fresh.

Risks Can Also Mean Rewards

One last thought about risk. Risk can also mean reward. Not all risks represent threats to be avoided. Sometimes there is a reward in taking a risk. There are healthy risks, such as exploring new service opportunities or expanding into new areas. Being completely “risk-averse ” may also close you off to new opportunities.

With benefit-associated risks, organizations should conduct full due diligence. Exploring all possible scenarios (not just the positive ones) is a balanced way to approach business risk.

Life brings risks. Some risks offer rewards, and some should be mitigated. By exploring possible business risks and planning ahead of time on how to manage them, nonprofits can remain healthy and operational in the event a risk becomes reality.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Jan 30
0

Why Every Nonprofit Needs a Reserve Fund (And How to Build One)

By | Accounting, Nonprofit | No Comments

Nonprofits exist to serve their communities, but many operate on razor-thin margins, leaving them vulnerable to unexpected challenges. While organizations focus on maximizing impact and serving beneficiaries, they often overlook a critical tool for long-term sustainability: the reserve fund.

Just as financial experts recommend that individuals maintain emergency savings, nonprofits need a financial cushion to weather uncertainty. With government funding sources uncertain and ever-changing, and the potential for grants to suddenly dry up, it makes sense to have a reserve or emergency fund.

Understanding Reserve Funds: More Than Money in the Bank

A reserve fund consists of liquid, accessible resources set aside specifically for unexpected financial disruptions. These funds remain available when your organization faces revenue shortfalls, surprise expenses, or external crises that threaten operations.

Despite their importance, reserve funds face persistent misconceptions. Critics sometimes view them as money sitting idle or evidence of misaligned priorities. Some worry that maintaining reserves signals hoarding rather than mission focus.

These concerns miss the fundamental purpose of reserves. A well-managed reserve fund represents strategic planning, not excess. It functions as a stability tool that protects your ability to serve your community consistently, even when circumstances change suddenly.

The Unique Vulnerabilities Nonprofits Face

Nonprofit organizations operate in an inherently unstable financial environment. Understanding these vulnerabilities makes the case for reserves even stronger.

  • Revenue streams remain unpredictable. Donations fluctuate with economic conditions, rising during prosperous times and declining during recessions. Grant funding may face delays or fail to renew without warning. Fundraising events can underperform due to weather, competing activities, or unforeseen disruptions like pandemics. This unpredictability makes planning difficult and increases organizational fragility.
  • Operating costs never pause. Payroll obligations continue regardless of donation levels. Rent, utilities, insurance, and program commitments demand payment on schedule. When revenue drops, nonprofits without reserves face impossible choices between cutting programs, reducing staff, or accumulating debt. Organizations with limited income diversification face even greater risk when their primary funding source weakens.
  • External shocks create double pressure. Economic downturns, changes in government policies, natural disasters, and public health crises create a devastating paradox for nonprofits. These events simultaneously increase demand for services while reducing available funding. When communities need help most, nonprofits without reserves may lack the resources to respond effectively.

Determining the Right Reserve Target

Most financial advisors recommend that nonprofits maintain reserves equal to three to six months of operating expenses. This benchmark provides a useful starting point, but the right amount depends on your specific circumstances.

Consider your revenue volatility when setting targets. Organizations with diverse, stable funding streams may operate safely with smaller reserves. Nonprofits dependent on a single major grant or seasonal fundraising need larger cushions to manage their inherent instability.

Evaluate your program commitments carefully. Organizations that can scale services up or down relatively easily face less risk than those with fixed obligations. Long-term contracts, permanent staff, and facility leases all increase the amount of reserves needed to weather disruptions.

Your organizational size and risk profile matter too. Larger organizations with more complex operations typically need proportionally larger reserves. Newer nonprofits operating in uncertain environments should prioritize reserve building more aggressively than established organizations with proven track records.

Practical Strategies for Building Reserves

Building reserves requires commitment and discipline, but the process need not be overwhelming. Start small and remain consistent, allowing your reserve to grow steadily over time.

  • Allocate a percentage of unrestricted donations. Even dedicating five or ten percent of general operating gifts to reserves creates meaningful growth. As these contributions accumulate, your financial stability improves incrementally. Make this allocation automatic rather than discretionary to ensure consistency.
  • Direct windfalls to reserves first. When your organization receives unexpected grants, bequests, or year-end surpluses, resist the temptation to increase spending immediately. Instead, channel these one-time resources directly into reserves. This approach accelerates reserve growth without impacting regular operations.
  • Implement automatic transfers. Treat reserve contributions like a fixed expense, transferring funds regularly from operating accounts to designated reserve accounts. This systematic approach removes decision fatigue and ensures steady progress regardless of competing priorities.
  • Optimize cash management. Hold reserve funds in accounts that remain liquid while earning reasonable interest. Money market accounts and similar vehicles provide accessibility during emergencies while generating modest returns. Avoid tying reserves up in investments that cannot be accessed quickly when needs arise.
  • Establish a board-approved reserve policy. Formal policies clarify the purpose, target amount, and conditions for using reserves. Written guidelines build organizational discipline and prevent reserves from being raided for non-emergency purposes. Strong policies also provide transparency that satisfies funders and auditors.

Addressing Common Concerns

Despite the compelling case for reserves, nonprofit leaders often hesitate due to understandable concerns.

Some organizations believe they cannot afford to save while facing current needs. This perspective reverses cause and effect. Nonprofits that cannot absorb small financial shocks today will face much larger crises tomorrow. Starting small with reserves provides more security than waiting for perfect conditions that may never arrive.

Others worry that donors will react negatively to learning about reserves. In reality, sophisticated donors appreciate responsible financial management. Transparency about reserves demonstrates that leadership takes sustainability seriously. Frame reserves as mission protection rather than excess, and donors typically respond positively.

The concern that reserves divert resources from programs represents a false economy. Reserves prevent program disruptions that cost far more than the initial savings. Organizations that build reserves serve more people over time because they avoid the shutdowns and cutbacks that plague undercapitalized nonprofits.

Sage Intacct Supports Nonprofit Financial Management and Reserve Funds

Sage Intacct gives healthcare nonprofits the financial clarity they need to build and manage a true reserve fund by providing real‑time visibility into cash, unrestricted revenue, and operating expenses. Its dimensional reporting lets organizations easily track reserve balances separately from operating funds, monitor progress toward reserve targets, and model different savings scenarios without complex spreadsheets. Because Intacct automates grant tracking, intercompany transactions, and consolidations, it frees up staff time to focus on long‑term financial planning—including setting aside consistent contributions to a reserve. With strong internal controls and audit trails, nonprofits can also establish board‑approved reserve policies and enforce them within the system, ensuring that reserve funds are protected, transparent, and only used under defined circumstances.

Building Resilience for Tomorrow’s Challenges

A reserve fund represents more than financial prudence. It embodies your organization’s commitment to the people and communities you serve. Reserves ensure that when beneficiaries need you most, your nonprofit remains capable of responding effectively.

Building reserves takes time and discipline, but the process need not be complicated. Start today by directing even a small portion of resources toward reserves. Establish clear policies that guide reserve accumulation and use. Communicate transparently with stakeholders about why reserves protect your mission.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.