Over the past two years, I have seen many charities re-evaluate their financial systems and processes in the wake of the pandemic. The shift to remote working has highlighted the downsides of older accounting systems that are increasingly not fit for purpose. This includes systems that are not accessible remotely, that do not automatically link with other internal systems or online banking, and systems that rely heavily on manual record-keeping to support management reporting.
Making a wholesale change to your accounting system can be a lengthy process that requires significant time and investment. There are often significant rewards however, particularly if you move to a system which can automatically import financial transactions from other relevant IT systems or your online banking, which will ultimately save time and reduce the risk of manual input error.
A new system gives you the chance to revisit your management reporting pack, and a key objective should be the ability to automatically generate suitably tailored management reporting information.
Making the most of the change
As an auditor I am frequently asked whether I recommend any specific systems, but I have had enough conversations to know that for every fan of a particular system there is someone equally opposed to it. Much of the success of a system depends on the implementation process and ensuring that it is built in a way that is suitable for your organisation.
For faith charities with complex fund structures, building a suitably tailored ledger is vital. As part of the implementation process you should review your existing ledger to assess whether any codes or categories are no longer appropriate or need disaggregation. This review should critically assess the funds structure in the ledger, for example, by establishing codes for restricted and endowed funds and their associated investments or other assets, so that these can be easily identified as not forming part of general funds in each set of management accounts.
Project accounting can be a valuable resource for fund accounting, enabling you to classify both restricted income and the costs associated with restricted funds at the point of entry. This will allow funds to be monitored through the management accounts and easily identified for year-end reporting. It is invaluable to have the ability to identify restricted projects at risk of going over budget in real time.
It is still very common for charities to use Excel spreadsheets outside of the accounting system, particularly for fixed-asset registers and year-end reporting, such as the allocation of support costs. Keeping financial records in Excel leads to additional risk as there is more scope for human error, for example through incorrect use of formulae. Therefore, it is advisable to build a monthly or quarterly review of any manual records into your financial procedures.
The start of a new financial year is generally the easiest time to make a change, as it avoids transferring data between two systems during the financial year. An in-year change is not completely impractical, and some organisations will choose to run the old and new systems concurrently to ensure that the new system is operating effectively before switching over completely. If you do make a change in-year, make sure that you continue to either have access to your old system or download the data in an easily accessible format to assist with the year-end reporting and audit. Accounting records must be kept for a period of at least six years, so you should ensure that the historic data retained covers this period.
Ensuring team buy-in
Although financial systems are becoming increasingly automated, much is still dependent on people. It is important to ensure that the finance team is consulted about the change, giving team members the opportunity to comment on what they find challenging about the current system and what they would appreciate in a new one. Without the buy-in of the finance team, old practices may continue after implementation, leading to inefficiencies or errors in the way the new system is operated. Once implemented, management should closely monitor financial processing to help identify any training needs, for example by a monthly review of journal transactions.
Less time spent doing
The overarching benefit of a change to an accounting system is the amount of management time that can be freed up. With the right system in place, management can spend time focusing their efforts on financial strategy and future planning which are incredibly vital for stability and success.
Jane Askew is a director for not for profit at haysmacintyre