Finance and accounting software packages - Budgeting - FM

Choosing and implementing finance computer applications that suit voluntary organisations

Community and voluntary organisations have specific needs from accounting packages. This affects the process of selecting and implementing the right software. In this document you can find out about:

The specific needs of the sector

Community and voluntary organisations need different accounting and finance packages from commercial organisations. This is because their financial and internal reporting requirements are not the same: they need to report financial information to various stakeholder groups in different formats.

For example:

Managers may need a traditional classification of expenses into the usual headings such as rent, rates, light and heat etc. for management accounting purposes
Summary accounts may need to be prepared for trustee meetings
Core cost analyses may be required when tendering for contracts

In particular, the financial statements for voluntary organisations should disclose the various sources of incoming resources and how these funds have been used in accordance with the charity accounting Statement of Recommended Practice (SORP 2005).

This lays down a layout for the Income and Expenditure statement which is very different from that used by commercial concerns. The financial statements for community and voluntary organisations are prepared using "fund accounting" principles and thus need to disclose any restricted funds separately. The financial statements for for-profit companies are concerned more with the profitability of the organisation: thus the format is very different.

The need for to separately record restricted incoming funds and expenditure will also need to be incorporated into the internal reporting structure. This is to avoid any possibility of trustees being liable for breach of trust, as restricted funds can only be used for their intended and stipulated purpose, unless prior agreement has been obtained.

The reporting and control issues for community and voluntary organisations are in many ways more complex than for for-profit companies. For example:

"Non-profit" organisations may need a more complex "coding structure" instead of all wages simply having the same code, they may have be split across several restricted funds. This means that the package needs more levels of analysis.
Designated funds require "commitment accounting", that is, the ability to report on what has happened to a particular project. A classic example might be the decision to repair or rebuild a church spire, how far has it got? What has been done so far? What is the present shortfall in funding?

As a result, the accounting and finance software needed is more complex than software used in the for-profit sector. Some software designers and manufacturers have therefore developed packages for the voluntary sector.

The selection and implementation process

The selection and implementation processes will depend on whether you are simply looking for a stand-alone product for a single user, or want to upgrade an existing system with multiple users perhaps across different sites.

When considering what software to purchase, the decision will depend on the size of the organisation and how complex its needs are. A small organisation with no trained financial staff will want something much simpler and cheaper than one with a large branch network and complicated operations. However, if too simple a package is selected, the organisation may have to search for a third-party software package to link the information required to the package orginally purchased.

Needs are likely to be more complex than commercial organisations of a similar size. An organisation with around £500,000 income may need to look at software designed for companies with turnover five or ten times as high. Also, use of volunteers can mean they are often bigger organisations than their income figure might imply.

Planning

It is important to be clear about why you want to change your current system. Maybe it is no longer being technically supported. Perhaps your organisation has grown rapidly and you need to reflect the changes that come with growth. It may be that you want better reporting facilities.

Systematically consult with users. Consult both users of the current system and users of the financial information you provide. Ask them for feed-back on improvements to the current system:

What are its strengths?
What are its weaknesses?
Is there information they would find useful that your current system cannot provide?

Begin to draw up a list of what you want your new system to achieve for you, both immediately and projecting into the future. This is particularly important if your organisation is expanding or taking new types of contract.

Look for opportunities to overhaul your work practices . You may find you do not need to change your system!
Look at your budget . Typically the actual software will account for less than half the total cost. Other costs will include staff training and running both old and new system together. Do you have the budget to change your system now or is this something you are going to budget to do in future?
Consider how the work of your staff will need to change. Do your staff have the skills and experience which will be required or will they require training?
Take time to investigate what's on the market . Don't restrict your investigation to your existing system supplier.
Talk to others . Arrange to visit other organisations similar to your own and see how they have addressed the problem. Find out what other packages they are using and how they are making the most of them.

Selection

'List of finance and accounting packages': this list is not exhaustive but lists some of the more popular packages used in the voluntary sector.
Follow up third party endorsements or recommendations as this may well provide valuable information on how the application has performed.
Check your short-listed packages meet your needs. Once you have decided on a few applications that you think might suit, go for a test drive! Bring along a few real life examples that really tests the system.
Involve staff who will be using the system in the demonstration to try out the new software or upgrade.
Consider how the software will be supported . Is there a telephone helpline? How often will there be upgrades? What will they cost? On the one hand commitment to upgrades means that support is likely to continue, but on the other hand the upgrades may prove expensive and entail further training.
Consider how your hardware and other software will be affected . Will the amount of memory suffice, do you need complete new machines or can you increase the memory? If new hardware is needed do remember to factor in the potential training needs associated with it.
Re-appraise your plan . Take the opportunity to consider what has changed from your initial thoughts. Be clear about your reasons for change, opportunities for change in the broader context; identify people issues; how any long term company plans may affect your decision; and the level of budget required to support the new system.

Implementation

It is only when you are absolutely clear about what you want the new system to do, and the resources that will be needed to support it, are you ready to make the purchase decision.

Be realistic about timescales . This is true especially if you are thinking of changing the whole system. Draw up a timescale by asking:

How long will training take?
When do you start running the two systems in parallel and for how long?
When do you stop using the old system?
Have arrangements been made to discontinue any licence fees that attach to the old system?

Involve the ICT manager . The ICT manager will have the responsibility of installing and maintaining the software, and possibly of contributing to the staff training, so s/he needs to be involved at the planning stage.

A Finance Manager does not have the technical skills to upgrade or change ICT systems but they should have already checked out that the current hardware and software will be able to support an upgrade or change in your finance and accounting software.

Allocate responsibilities .

Who has responsibility for ensuring that delivery is complete? (That is, who has responsibility for ensuring that all components of hardware and software have been delivered as ordered?)
Who is setting up the software?
Who is testing it? Ideally, a representative of the vendor company should be on hand especially if it is a large expensive order.

Implementation tips

Take account of all the features of the new software before you start entering your data
Verify your opening balances are correct
Sort out messy accounts before computerising them - it will only make the mess worse!
Ensuring that no data is omitted or duplicated
Try to start using new software at the start of the financial year, if possible. However, as this is often the busiest time for finance teams planning is very important.

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