Authored by Eric Charrette, CPA, MBA | Sage Intacct Manager, Accounting Solutions
Typically, nonprofit accounting processes are viewed through a lens of accountability instead of one of revenue and profitability, with funds reinvested back into the nonprofit. Because of this, having an easy-to-use chart of accounts (COA) in place is crucial to a nonprofit’s accounting approach. In this article, we’ll discuss the five primary benefits you can gain from an accounting system (like Sage Intacct) that leverages a dimensional chart of accounts.
The Backbone of Accounting for Nonprofits
A nonprofit’s chart of accounts acts as a comprehensive filing cabinet. It is the framework for storing all the financial information and transactions of the nonprofit, providing details about checking accounts, investments, payroll, utilities, and more. It affects most tasks the finance team needs to perform, impacting everything from data entry to financial reporting.
The fundamental objective of the chart of accounts is to organize all of a nonprofit’s financial transactions. This facilitates the creation of financial reports. To develop meaningful and pertinent internal controls, provide stakeholder reporting, and make strategic decisions about the future, a chart of accounts must be set up efficiently and effectively.
Why Chart of Accounts and Reporting Are a Challenge for Nonprofits
Cash management for a nonprofit can be tricky. Unlike for-profit organizations, nonprofits cannot rely on goods and services with net 30-day payment terms. Instead, they depend on foundations, governments, and donors, which could all have their own payment and disbursement schedules.
Nonprofits are also expected to report to more stakeholders, including a board of directors, donors, executives, grantors, and staff, and each has unique requirements. Because of the nature of a nonprofit, every dollar that comes in and out of the organization must not only be tracked but must have the ability to be viewed in multiple dimensions, such as:
- Funds
- Grants
- Programs
- Projects
- Locations
In older nonprofit fund accounting systems, this can be a frustrating process. These older systems are hard to integrate with other nonprofit systems and data sources, so it can be difficult to provide up-to-date reports that accurately describe the financial situation of the nonprofit. Older systems also create COAs that tend to produce thousands of hard-coded account numbers, which can result in an unmanageable number of account code combinations.
How a Modern System Can Produce Better Data Visibility
Donors want to know that the money they are donating is making an impact. This increased demand for transparency and accountability requires nonprofits to strategize, produce, and accurately report on successful outcomes. With legacy nonprofit fund accounting systems, this is often impossible, overly time-consuming, or only possible at month-end when insights are already outdated.
The wrong financial reporting system will require a lot of manual data entry and may even require your team to export data to Excel to provide the correct report format for stakeholders. This could be impossible with a lean nonprofit team, making it challenging to give stakeholders an accurate and complete view of financial performance.
The solution to these problems is a COA that uses logic-based dimensions instead of thousands of account code combinations, an easy-to-use reporting system that filters, slices, and dices data, and a system that can connect to data sources and provide real-time reporting.
Accelerating Nonprofit Reporting with Sage Intacct’s Logic-Based Chart of Accounts
Sage Intacct is a modern cloud financial management solution that has helped many nonprofit finance teams minimize complexity, reduce the number of account codes, and save time. In Sage Intacct, you can define key attributes in accounting and reporting and then use them to apply context to any transaction. The flexibility paired with dimensions make it far easier to find, sort, report, and analyze your organization’s financial data. Here are the top five benefits to a logic-based chart of accounts.
1. Reduce Complexity While Adding Rich Contextual Information
To track 10 projects, from six locations, with five departments each, you would need 300 account code combinations in a hard-coded chart of accounts. And what happens when you need to filter transactions by more than one dimension? In Sage Intacct, your COA only consists of your natural account to simplify your COA without sacrificing rich context. With the added dimensions and easy-to-use reporting functionality, you gain the visibility and insights needed to drive more efficiency and value. Plus, Intacct also enables your nonprofit to automatically create GAAP financial statements, FASB compliance reports, and Form 990 submissions for compliance, thus further streamlining your reporting processes.
2. “Slice and Dice” Data with Ease to Increase Reporting Accuracy
A dimensional chart of accounts provides critical “point-and-click” functionality so you can slice, dice, measure, and calculate data. As you automate reporting, your team will gain efficiency and improve reporting accuracy. Sage Intacct dimensions allow for comparative (cross-tab) and hierarchical (drill-down) organization of your organization’s key information. With these features, you’ll save all the time you spend manually capturing, aggregating, and manipulating data in multiple Excel spreadsheets and produce automated reports that deliver the answers you need.
3. Create Insightful Multi-Dimensional Reports for Improved Analysis
With Sage Intacct accounting software, you can use dimensions to customize reporting around activities, allowing both comparative and hierarchical viewing of key information along with context. When you spot something that needs more investigation, you can quickly drill down to the transaction-level details and documentation. You don’t need to wait for the distribution of month-end reports. You no longer have to call up one report, export it into an Excel spreadsheet, and then do the same again for a different area before trying to piece both data streams together manually. With the ability to analyze data from multiple dimensions, you can make more informed decisions across your organization and take action as soon as you see new opportunities or challenges.
4. Gain Visibility Across Financial and Operational Data
With the flexible reporting that Intacct provides, you can monitor the outcome and impact of the nonprofit’s efforts in real-time and provide reports that show the human side of its mission. Both financial and non-financial information can be displayed side by side in an outcomes dashboard to show this impact. And real-time data can be compared with data from past years or periods to demonstrate how the NGO is improving or where changes need to be made.
- Trying to rein in expenses? Provide program managers with online access to real-time budget vs. actual reports.
- Need more funding? Show grant managers and fundraisers the cost of impact and seek out new donations.
Imagine that kind of empowerment in your organization!
5. Achieve Increased Donor Transparency
It is important for a nonprofit to tell its donors a compelling story about its mission and impact. Sage Intacct allows you to set up role-based dashboards with custom components, like reports, graphs, and communication feeds, that fit the needs of specific users. Whether a report is meant for management, the board of directors, or donors, it can be customized to tell the right story in an easy-to-understand visual format. Intacct also produces the required compliance forms with ease.
Ready to see what more Sage Intacct can do for your nonprofit? Schedule a free 30-minute consultation to start the conversation.
