Within nonprofit Finance and Accounting, church back offices have unique challenges to solve with church accounting software solutions. Thankfully, there are solutions to pastors challenges designed for and affordable for churches, these unique challenges have better results than ever before to help maximize stewardship.
At AcctTwo, we've done more than 100 software implementations for churches across the country. I'd like to highlight some of the biggest challenges we see among our church customers, along with their solutions.
#1 - Credit Card Management
Churches use credit cards...a lot. They have a lot of people that need to buy supplies and services for the church - pastors, administrators, ministry leaders, and even volunteers. Churches tend to use corporate cards for purchasing. They don't usually have a centralized buying or purchasing department. They have a lot, often dozens, of department heads and ministry leaders who all buy separately. Managing this fragmented purchasing process is complex and time-consuming.
One solution, if the church's accounting system has the capability (which many legacy systems don't), is to implement expense or purchase requisitions inside the accounting or ERP system. The end user would choose the appropriate department/ministry and, subject to any approvals the church wants to implement, the purchase would flow through Accounts Payable. While many legacy systems can't handle church purchasing with the necessary number of entry points, modern ERP systems like Sage Intacct can certainly handle this approach.
Another option, and the one we see most, is that the church uses an expense management solution, like Nexonia, that connects to their accounting software via API and pulls data from the credit card company. This allows users to code the expenses appropriately and get them approved. It allows the finance team to implement controls over how much they can spend on certain items, require receipts, and manage travel expenses. Then the data can be pulled directly into cash management in Sage Intacct for reconciliation, and all individual credit card transactions will be combined as one total to be paid via check or record transfer. Solutions like Nexonia also have easy-to-use mobile apps which make submitting expenses and attaching receipts simple.
#2 - Budgeting
Typically, with legacy accounting and ERP software, the finance team has to pull financial data out of the system in to Excel or a spreadsheet application. They then organize it by department, location, ministry, etc. This then becomes the starting point for next year's budget. Next, that spreadsheet would need to be split into multiple spreadsheets to be shared with each department, ministry, or campus leader. These leaders would provide feedback, which would be incorporated back into the larger spreadsheet. That would then be redistributed for approval and another round of feedback. Any changes would need to be reincorporated and the process would happen again. This process is time-consuming and error-prone. Making mistakes is common, and version control is a serious challenge.
With best-in-class. cloud based church accounting software, our customers can choose to utilize on-board budgeting and planning, or integrate via API to industry-specific apps like Martus. Either solution should enable churches to easily create an initial budget, aggregating data in Sage Intacct. Individuals can go into Sage Intacct or Martus to update the budget for their functional area, without the finance staff having to build and break apart complicated spreadsheets. Final budgets are easy to share with department and ministry leaders, as well as with church leaders and board members. Changes are easy to make, the process is fast, and errors are minimized. And you can create as many revisions as you need in order to plan for a number of scenarios or outlooks.
#3 - The Chart of Accounts
In the world of legacy church accounting software - think QuickBooks, ACS, Abila, or Shelby - there's no structure that allows a church finance team to track and report by ministry without creating separate accounts for each of these segments. Segments can also include other key elements for churches, like locations, restricted and unrestricted funds, seasonal activities, ministries, bookstores, cafés, etc. Adding a separate account for each segment creates an unmanageable chart of accounts. We've seen churches with as many as 400 accounts all the way up to more than 2,000! When churches expand to new locations, the number of accounts starts to double and triple.
When reporting out of legacy software systems, these segments generally can't be selected individually or in groups. You tend to get everything. This is where spreadsheets start getting heavy use. Church finance folks are some of the most talented Excel users you'll ever find because of the complexity of providing reports for all the ministry leaders they support.
Modern accounting solutions, like Sage Intacct, are architected in such a way that you can create "Dimensions" for the various ministries, departments, locations, funds, grants, and other segments. Transactions can be tagged to a certain dimension. Controls can be put in place that limit the options for a given transaction or user, which helps maintain accurate data. As a result, reporting is a much simpler and more powerful process. Individual or multiple dimensions can be selected for reporting. Budgets and spending can be seen by ministry, or if a certain ministry leader is responsible for multiple ministries and even multiple locations, he or she can see the data that applies to him or her, and church leadership and members of the board can get a higher-level view of the financial data.
Systems like Sage Intacct can also present operational data alongside the financial information, so churches can look at attendance by service time and location, as an example, or staff to attendance ratio. Operational data can be loaded into the system via a file upload, or Sage Intacct has powerful APIs that can connect the accounting system to other systems and bring in that data automatically.
#4 - Fund Management
Managing church funds in many legacy systems is often done using cash accounts, with a different bank account for each fund. Restricted funds have to be tracked manually outside of the accounting system, usually in Excel, including the tracking of temporarily restricted funds. Each year, the finance team then has to make adjustments to fund balances for what is no longer restricted. They have to manually calculate what has been spent and then do a journal entry to release that amount. This is complicated, manual, and error-prone.
In modern accounting solutions like Sage Intacct, fund management is done in real-time, not through cash accounts. Sage Intacct tracks fund revenue through dimensions. Funds can be tagged as temporarily restricted, permanently restricted, or unrestricted using Sage Intacct dimensions. Sage Intacct continually tracks expense details related to any fund. In real time, all those expenses with their dimension tags go into net assets. At any time, the finance team can report on what has been brought in for a given fund, what's been spent, and the balance of that fund.
Times Have Changed
Churches no longer have to settle for out-of-date or unsophisticated software to manage their complex process and reporting requirements. Best-in-class cloud software like Sage Intacct, and others are now available with no IT or development support required at surprisingly affordable and predictable costs.
If you have any questions about accounting technology and best-practices for churches, faith-based organizations, and nonprofits, feel free to contact us.