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Nonprofit Development: Meet Accounting!
Nonprofit organizations often enter and manage key financial data in places other than their accounting system—and require that the data flow into the general ledger.
But getting the data from those systems—for managing fundraising, membership, grants, or service management—into the accounting system is rarely as straightforward as we would like it to be.
Do you struggle to integrate data in your Development and Accounting systems?
Many nonprofits struggle to manage the entire lifecycle of financial transactions flowing into the general ledger from other systems.
All nonprofits exert too much energy and time manually manipulating financial data inside or outside of their systems, performing duplicative data entry, exporting and importing data, debugging integration tools and processes, performing reconciliations, creating and maintaining reports, and responding to auditors.
While there are clearly technical challenges, often the heart of the problem is the need to reconcile the differences in requirements between departments – for example, Development and Accounting – where both have different but equally legitimate needs to view financial data in different ways.
This “Ask the Experts” webinar explores this topic of Nonprofit Development, Meet Accounting!
We’ve assembled a panel of three experts with more than 60 combined years of experience solving just these sorts of problems for nonprofit organizations. As we’ve worked with the World Wildlife Fund, Bread for the World, the New Hampshire Charitable Foundation, the Meridian Institute, and hundreds of other organizations, we’ve picked up a few things about how to establish leadership and operational practices, business processes, data models, and technology environments that work together in solving our clients’ challenges.
This webinar is appropriate for nonprofit executives, managers, accounting, development, and nonprofit IT personnel – and as with all our webinars, it is appropriate for a varied audience.
Debbie Cameron is a Managing Consultant at Build Consulting who transitioned to the nonprofit sector 13 years ago to follow her passion for advancing non-profit business through technology. Her 15 years of information technology and business management experience includes leading complex implementations that varies from short-term to multi-year initiatives. Debbie’s solution-focused approach empowers the success of her clients and their projects.
Peter Mirus, Partner at Build Consulting, is an expert at helping organizations and people to learn, communicate, and grow through the use of information technology. He has more than 15 years of experience as an executive, strategist, analyst, and solution developer, serving more than 30 non-profits and 40 professional services firms ranging from start-ups to large international organizations.
Peter Gross, Partner at Build Consulting, caught the nonprofit bug 20 years ago, working for a passionate, innovative civil rights organization in Detroit. Build Consulting is an expression of his respect for similarly passionate organizations, and is focused by his belief that people who feel their time and skills are valued help create innovative and accomplished organizations.
In this webinar the panelists shared their thoughts in answer to the following questions:
- What are the differing viewpoints or priorities of Development and Accounting when it comes to managing financial data?
- How can we resolve misunderstanding between Development and Accounting about how to categorize gift records?
- Our chart of accounts is currently very complex and confusing, which makes it very difficult to map gift records to the GL for integration. Is there a solution?
- What are some of the key problems with how nonprofits manage gift records that make life hard for Accounting?
- Our donation/membership/grants are first recorded in the Financial Edge in our accounting office, then given to development to record in Raiser’s Edge. Is this process being done backwards?
- What should we be thinking about when planning a CRM to ERP integration to help make sure the data flows properly?
- We’re thinking about changing our CRM and/or ERP system to help solve our financial data flow problems. How should we approach this process? And what systems should we consider?
- Have you ever had two nonprofits who needed essentially the same application share the development cost?
- What items in the new FASB financial reporting rules have the biggest impact on nonprofit GL structures and GL feeds from the CRM system?
Peter Mirus: Hello everyone and welcome to our webinar called “Ask the Experts: Development, Meet Accounting,” presented as a partnership between Build Consulting and Community IT Innovators. In this webinar, a panel of experts from Build Consulting will be answering the questions you submitted in advance regarding how development and accounting can better work together to manage financial data.
A little bit about Community IT and Build Consulting: We both work exclusively with nonprofit organizations to help them make information technology and system decisions that support their mission.
We both take a collaborative approach empowering our clients to make informed choices for their organizations.
- Community IT is focused on providing outsource to network management and technical support services.
- Build Consulting leads in the social good sector by providing 3 different types of services that complement those provided by Community IT. The first is we service part-time or interim chief information officers for nonprofits. We also perform business process, technology, and data projects ranging from strategic assessments to tech roadmaps for system selections and implementations. And, we build teams. We provide outsource data managers with deep development operations experience as well as nonprofit Customer Relationship Management (CRM) expertise.
My name is Peter Mirus. I was one of the co-founders of Build three years ago after a 15-year career in marketing, development and information management for both the nonprofit and for-profit sectors. And, over the past 3 years, a good amount of my clients’ projects have revolved around selecting and implementing or improving existing CRM and Enterprise Resource Planning (ERP) systems including integrations between the two.
The reason I am doing this work is because I am passionate about helping nonprofit organizations fulfill their mission by leveraging technology. That’s why I am here today with you and very happy to be so.
I am happy to welcome two of my colleagues from Build Consulting who along with myself will be serving as our panel of experts for today’s session. Debbie Cameron, will you please introduce yourself.
Debbie Cameron: Sure. Hi, everyone, my name is Debbie Cameron. I am a managing consultant [now Partner] with Build Consulting. I started in consulting about 20 years ago with a big 5 firm, and after about 6 years, I was looking for more purpose in my work. So, I joined the nonprofit practice. I eventually made my way into working directly for a nonprofit. I wanted to fully embrace the other side and then joined Build because I thought it brought those two worlds together perfectly. In particular, I like how Build is software-agnostic because it really allows me to not only be an advocate for my client, but provides me the freedom to help nonprofit support technology.
Peter Mirus: Thanks Debbie. And, we have another Peter with us today, Peter Gross.
Peter Gross: Yes. Hi, everybody. I am Peter Gross. You can think of me as Peter G to distinguish from Peter M. I was also one of the founding partners of Build Consulting. I actually started my career post-college working in nonprofit organizations, and pretty much the first one I worked for was doing development — fundraising and grants management, program management and advocacy for a civil rights organization in Detroit that’s called Focus: HOPE, a very inspirational place that sort of cemented me being in the nonprofit sector. I went on after 8 or 9 years working in nonprofit organizations. I went and actually worked for Blackbaud for 6 years in the early 2000s and then have been consulting in one form or another since 2007.
What keeps me engaged in this work is finding new and different ways to help the people that work in nonprofits achieve the kind of change they are looking for and that’s grounded in a lot of years of seeing a lot of frustration from organizations that are unable to break through either organizational or cultural or individual kind of barriers. And, that’s a lot of what we try to focus on at Build, not only the technology side, but the people side.
Peter Mirus: Thanks Peter. And now, we are just going to move on straight to your questions.
We received a number of excellent questions in advance from registrants and we boiled them down into 6 that we will plan on answering during this session. So, we are just going to step to the questions one at a time, give our best shot at answering them, and as I said, feel free to jot in your complimentary or follow-up questions.
So, the first question is really fundamental one:
What are the different viewpoints or priorities of development and accounting when it comes to managing financial data?
Peter, do you want to kick us off with this one?
Peter Gross: Sure. You know this is a topic that is actually pretty close to my heart because it’s conversations that I’ve been having for years with the organizations and I tended to focus more on the development side of things in the earlier part of my career, but have since been involved in both — in sort of both sides of the house. And, the truth is that this is not unique to development accounting.
I think any organization whether that be a nonprofit, a company, a family, anything else, we have a tendency as humans to get caught up in our own perspective. And, like I said, even in nonprofits, that is not limited to development and accounting, but I would say development and accounting is sort of the classic Hatfields and McCoys of the nonprofit world. For reasons that I think are understandable there tends to be a point of tension in organizations, not every organization, but many. I think it’s important to recognize that each of the functions within an organization necessarily comes to the table with its own unique and valid mindset and its own set of priorities.
- Development folks tend to be focused on how can I build relationships to raise the most money. They get measured on how much money they raise, what kind of relationships they build, how happy their donors are, how connected they are able to make people to the organization. And thus, that’s the lens they come to with managing financial data. It’s “I need to count the money I raised and I need to make my donors happy and et cetera.”
- Accounting folks, on the other hand, tend to be focused more on managing financial data in a way that is (you can pick your adjective) compliant, accurate, risk reducing, et cetera. They are asking the question, they are getting evaluated, “How can I make the auditors happy and protect the organization in the most effective way?”
Both of those are 100 percent legitimate viewpoints and we’ll talk a little bit later about how we try to resolve those 2 different points of views, but they tend to be more competitive rather than complementary, and in our experience, it really can be complementary.
Peter Mirus: Debbie?
Debbie Cameron: I agree with a lot of what Peter said. I think it’s important for both sides to understand each other’s perspective and points of view. I think education can go a long way around this. In a lot of ways, the accounting team has an obligation to adhere to a number of guidelines to ensure that the financial recording for the organization is accurate and they are in compliance for when the auditors come onsite. And, I think a lot of those guidelines are not always clear to all the stakeholders across the organization.
A good example of this that I have seen most recently in clients is about revenue associated with Facebook and mobile apps and the process of recognizing that revenue. Understandably, the online teams want to recognize that revenue as soon as it’s committed, but in order to do so with a certain level of accuracy, accounting really needs to wait until that money comes to the door. That can take 30 to 45 days sometimes. Unless that’s communicated to the development team, they are just sitting there waiting for that to show up on their dashboards and their records and they are wondering why it’s not.
If we just focus on creating an environment that fosters communication that allows for cross-training, I certainly don’t mean having some Lunch and Learns focused on the fundamentals of cost accounting, but just something to enable everybody to have a working understanding of the guidelines and principles around the financial reporting and staying compliant with audits. I think that communication and education can serve as a cornerstone to build a successful relationship between the two teams.
Peter Mirus: Yeah, those are great points and a lot of what we end up doing is bringing development and accounting together and facilitating conversations between the two because, when they do get together, there is a lot of talking at cross purposes. So, it’s really a facilitated sort of change management operation to try to bring those two diverse perspectives together.
So, question two sort of builds on that. It’s a little bit more focused on gift records and the question was:
How can we resolve misunderstanding between development and accounting about how to categorize gift records?
One of the things that we deal with a lot as a consulting firm, in helping organizations with their donor management or fundraising or CRM systems, is how those transactions are categorized.
When they come in, it can be a very thorny and challenging process to keep straight, particularly when there are a lot of revenue streams, a lot of different channels. So, Peter G, would you go about answering this question?
Peter Gross: Sure.
When we walk into an organization and they are having this particular challenge, the extra added challenge is that on a day-to-day basis, they are having to work in the systems that they are in with the categorization schemes that they have.
At the same time, they are trying to envision what a better system would look like and it’s very easy to get mixed up between the two and to get sort of off kilter.
Trying to change the gift categorization stream in midyear or mid work is like trying to work on the engine of your car while it’s flying down the highway, right? It’s just very, a very difficult thing to balance.
I think for organizations that are having this kind of a struggle of a more effective way to categorize their gifts, I think it’s important to take a step back.
- The first thing to do is to forget about the systems you’ve got. Forget about the categorization that you’ve got right now.
- And, as Peter said, have a facilitated session, a collaborative session in which the first thing you are doing is actually defining from a business perspective the ways in which the organization needs to categorize gifts, a business perspective, not a technical perspective.
So, as examples, development, it’s very important that they honor the donor intent of the money. Obviously, it’s also important for accounting because it needs to get put in the right place and spent the right way. Development needs to know the various ways in which the money was acquired. So, in some organizations, that’s a relatively high level, relatively simple set of choices you make about how that money was secured, and in some cases, for organizations that do sophisticated direct mail, it’s actually an incredibly complex situation.
Development also cares about who gets credit for the gift either at the individual level, at the team level, at the campaign level and there is a variety of other ways that development can care about this well obviously.
From the accounting perspective, they care about how that information is going to flow into the GL and the various ways that the GL string might reflect different categories. They obviously care about payment type. They care about the source of the money for reconciliation, a variety of other pieces.
What we do, very simply, is draw a picture of the business need for categorization of gift records and make sure they were agreed across the organization by whoever cares about those particular categories. That on paper, we understand: this is what development needs; this is what accounting needs, this might be what program areas need, et cetera, et cetera.
Once you’ve agreed on that scheme, then you can start to look and say, “All right, we have this finance system, we have this fundraising system, we might have these other systems. What’s the best way for us to get that information categorized based on the systems we have?” And, I was intrigued by Debbie’s Facebook example because that’s sort of a classic example. There is lots of times where development needs to be able to account for the fact — sorry to use the word account — needs to be able to capture the fact that they have secured funds even if those funds are not recognizable from an accounting perspective.
There can be certain kinds of transactions in a fundraising system that are recognized as not posting until something happens down the road. So, it might be a pledge that is conditional. I want to get credit for the fact that I got a $100,000 pledge because I did get that at least verbal commitment, but the accounting team isn’t ready to recognize it.
There are ways to do that using both systems for the things that they are best at doing. And then, the Facebook example’s the same way. There should be a way to record the fact that that commitment has been made from Facebook, but not have it not reflected or reflected differently in the accounting system to recognize that it is not a legally fiscally recognized donation.
Debbie Cameron: Yeah, and I think taking the time to make sure that you do define the business rules around how things are coded is a worthy investment of time. I think the importance of how the gifts are categorized is important because of how it flows into the general ledger. When that gift coding is wrong, the downstream impacts, affects financial recording. No one in the organization wants that.
I think everybody wants to work together to ensure that it’s done correctly and it’s done in a way that makes sense for the organization. And, I think again, education serves as a cornerstone in this as well. I think training and understanding the structure really is what’s going to drive success.
I had one client who implemented a CRM and they had an integration directly to their GL, and one common problem they had was around charitable remainder trust and typically when you have a charitable remainder trust, once you calculate the future value, you recognize the revenue and you set up the receivable. The problem they were having is when the cash receivables would come in, no one was aware or knew where to look to make sure or to see that there was an open trust. And so, when the trust was terminated and that cash came in, it was often times recorded as outright revenue and they were consistently overstating revenue. In each month, they would need to go back and make an adjustment and the auditors didn’t love that, and so they decided that the best way to deal with that was to invest in training.
We did have some audit report set up, but you can also look at it in terms of the systematic control and where you can put in systematic controls. I know another frequent occurrence of where gifts are miscoded, as Peter mentioned before, is around pledges and attributing those payments to those pledges. And, I had a client set up their CRM so that if you are entering a donation on a constituent record and there was an open pledge on that record, you could not enter the donation without being notified about the pledge, the open pledge, so that you would double check to make sure that that shouldn’t be appropriately attributed to the pledge. So, I think education, understanding on this topic is also key and I think looking where you can put controls in place is also really important.
Peter Mirus: Thanks. I know we are going to talk about this a little bit in the future, but one of the things that we will discuss, and has bearing on this, is that a lot of times accounting wants to be able to rely on how gifts are coded inside of the CRM system, but they just don’t trust that the development team is going to regard those records as being an AR or accounts receivable subledger and treated with the same level of strict diligence that the accounting team would. We’ll get into that a little bit here, but that’s another aspect of resolving the misunderstanding between development and accounting: how to categorize gift records. There is a level of process diligence that’s required in order for this records and the CRM to serve in a way that is needed for the organization.
Peter Gross: Can I add one thing?
Peter Mirus: Yeah, go ahead.
Peter Gross: Yeah, as you were saying that, I was thinking about one of the keys to resolving this is: a lot of organizations have historically held the entry of and the categorization of gift transactions in one department or another. I would say more often, historically, it’s been in accounting. And, part of the process of resolving that misunderstanding is building up a mutual understanding that these gift records are organizational assets. The gifts are as well, obviously. because the money that comes in is funding for the entire organization. But, the records themselves are assets that belong to the entire organization.
If the categorization scheme and process is really too heavily weighted in either direction, development or accounting, we see downstream effects in either direction. I really like that wording that Debbie had because if we don’t categorize the fiscal categorization components correctly, then we have really terrible effects downstream in terms of financial reporting and auditing and all of those things. If it’s weighted too heavily on the accounting side, we end up with the inability of the fundraising office / development office to actually utilize that data to do analysis and to make decisions about where the best places are to deploy resources. So, recognizing these systems overall, but gifts in particular, as an organizational asset, I think is a really important part of breaking through this barrier of resolving that understanding.
Peter Mirus: Right, yeah. So, moving on to the next question. This is one that I get a lot.
Our chart of accounts is currently very complex and confusing which makes it very difficult to map gift records to the GL for integration. Is there a solution?
I mean we have seen some labyrinthine charts of accounts and sometimes justifiably so. Debbie, how would you go about answering this question?
Debbie Cameron: Yeah, I would agree. I would say you are not alone with this challenge. Typically nonprofit accounting staff and other resources are often thin, and as a result, many nonprofits struggle to not have their chart of accounts grow into a very complex structure.
I actually have a client whose general ledgers is so complex that they are no longer able to invent their general ledger coding into their online donations forms. And so, they now are living with a process where they once just downloaded the information and then uploaded it into their financial statement. They now download the information. They run a macro on it. They run it through a pivot table and manually manipulate it until then it’s ready to be uploaded to the GL.
When you find yourself with a process that becomes that complex and manual or you find yourself really struggling with a very complex difficult process in coding gifts, that it’s important for the organization to step back and say, “Hey, do we need to audit our chart of accounts? Do we need to take a look and see where we can streamline, where we can group things together?” When you are going through that process, I think some important questions to ask are: “Do we have the right level of detail?”
I remember a college professor once saying that just like snowflakes, there are no two charts of accounts the same. And, I think that’s one thing that a lot of organizations struggle when they look at their chart of accounts is how can I tell if I have enough detail because they can’t necessarily look at another chart of accounts for that guideline.
You really just need to stick with the best practice of aiming for the smallest number of accounts that still provide you the level of detail that enable you to make informed decisions and create valuable reports.
In the vein of reporting, I think you need to step back and ask yourself: Does it summarize your transactions in a meaningful way or are there ways that accounts can be grouped together?
Going to that extra level of detail really isn’t giving you any additional insight into the financial health of the organization.
Another thing I think it’s important to look at: Is the naming system clear? Are we using acronyms or accounting jargon that other folks in the organization maybe are not going to be able to interpret as easily?
Always try to outline it with the way you are budgeting as well.
Peter Mirus: Yeah, I think these are great points and I will say from the technical side, a lot of clients find benefit when they are compelled to look at accounting: different accounting systems and their current systems, for some reason, and maybe they are looking at a more modern ERP platform. They get exposed to more modern or more dynamic ways of managing charts of accounts where it’s more of a relational data model. So, you end up with a smaller core set of accounts in your chart of accounts and a lot of those other classifiers are spread across other data attributes and make it a lot easier and flexible for nimble reporting as well.
So, there is a lot of opportunity for new ways of managing the chart of accounts that actually make it easier to map the flow of data from the CRM into the ERP system. There is just more flexibility in how you connect things.
Next question is:
What are some of the key problems with how nonprofits manage gift records and make life hard for accounting?
I’ll give an example to keep the ball rolling. I had a client at one instant when I came into the organization, wasn’t marking gifts as posted in the CRM when they were moved to the GL and they were using gift adjustments to make corrections to the original gift record moving forward. So, basically, rather than creating adjustments, every gift that needed to be modified in some way was edited in the original record. And of course, it created all kinds of problems for reconciliations between the accounting system and the CRM.
Figuring out a way to mark gifts as opposed to ones they’ve moved across and locking them in the system so they can be edited, and then making diligent and appropriate use of gift adjustments is a big thing in that scenario. Organizations aren’t implementing that as one of the first things that they should look at to make life easier for themselves. So, they have to go back looking for months to find that one gift that was improperly modified just to make the reconciliation workout.
Peter G, do you have anything to add?
Peter Gross: I think that’s a really good example. What I was thinking about was a broader point that encompasses the one you just made which is from our clients that have had challenges with the quality of their gift data and ability to utilize that gift data. It has a lot to do with a lack of a clear and consistent and enforceable workflow for how every transaction gets entered into the fundraising system.
Human beings have a tendency to try to figure out things that violate the rule and do work around and get that. But, that GL posting is a perfect example and I’ll just use Raiser’s Edge as an example because lots of folks have it and there is a number of different ways to enter a gift into Raiser’s Edge.
The two primary ones are: you can enter them one by one into a gift record, you open up a gift record and you enter it. The other one is through what they call their batch process and other systems obviously have a version of this as well. What the batch system allows you to do is actually to build in workflow; build in some automation that means fewer clicks, fewer mistakes and the people are paying attention to each one of the fields that they need to and that the ones that they don’t care about aren’t even in the view.
That’s another example where people, because they haven’t come up with a consistent way of using the best parts of whatever software system they have, end up with where they miss things, where where they make errors. Those errors either don’t get identified until they end up in a financial report or when they were doing reconciliation or when the donor said something because their acknowledgment letter was wrong.
The more we both leverage the natural capabilities of whatever systems in place and the more we enforce the rules about how gifts from soup to nuts get handled, the less likely we are to miss things and make errors. Also, when we have a process, even if it’s not perfect, but everyone’s following it, it’s much easier to then tweak that process or rework the process when we need to because everyone’s doing it. We’re going to identify where those errors are, we can make adjustments and let everyone know what adjustments were made as well as adapt to changes in whatever software system we have.
So, I think being as faithful to a good process as we can be and leveraging as much of the capability of the software system, I think, fix a couple of the larger mistakes. The gifts getting posted and not getting marked as posted when they move over to GL, that’s another sort of classic thing that works actually quite well in something like the Raiser’s Edge and very, very few folks actually take advantage of it and that leads to all sorts of downstream problems.
Peter Mirus: I mean these are some opportunities to answer an audience question which is:
Our donation/membership/grants are first recorded in the Financial Edge in our accounting office, then given to development to record in Raiser’s Edge. Is this process being done backwards?
So, I answered this now because you mentioned Raiser’s Edge.
Peter Gross: Yeah.
Peter Mirus: You come to bring it up.
Peter Gross: I’d be happy to take that one or take the first shot at that one. So, what I would say without throwing anyone under the bus is that our experience is that
Best practice is that appropriate transactions – by that I mean charitable, sometimes event registrations, memberships, in general – those should have a one-way flow where the ideal is the information only actually gets typed in once.
So, I receive a check for a $100 from Peter Mirus, I go through my process and I was going to use the Raiser’s Edge since that was the example that the questioner gave. I enter that into my batch in Raiser’s Edge with all the appropriate information. It gets assigned to fund, a campaign, an appeal, there shouldn’t be a moment unless you have to reverse the check or do something like that. There shouldn’t be another moment where information is typed in once.
That gift has been entered because once it’s gone through the posting process, it’s converted into debits and credits that are then uploaded into Financial Edge assuming there are no problems. Again, if there is an error, obviously, we need to go back and make an adjustment. It might be just an adjustment. It might be retyping something that had a mistake in it. But, in general, you should be entering that data once and then it should flow through the system without being touched again.
That is the most efficient way because only one person is typing it, it reduces the chances of errors and is certainly best practice.
Now, the only exception I would give for that is there are sometimes extremely complicated grant payments or grant — event grant pledges where the details are so complex that sometimes it really does have to be handled in sort of a dual entry way.
We worked at some organizations that don’t do a lot of sort of regular fundraising, but do a lot of very complex grants and contracts. Those can be a little trickier to have sort of the one-way flow, but in general, this should be answered once and should flow to whatever accounting is in place.
Peter Mirus: Would you like to comment on the — which way is more appropriate part of the question?
Peter Gross: Sorry, I thought I did. They should enter into the fundraising system and flow over to the financial system.
Peter Mirus: Okay, just wanted to make ..
Peter Gross: Partially just because I think that is the most efficient way to do it and partially because there is no way other than re-hand entering it to get it out of FEN into RE, no way that I am aware of.
Peter Mirus: Right. Next question:
What should we be thinking about when planning a CRM to ERP integration to help make sure the data flows properly?
Debbie, would you like to take a shot at that one?
Debbie Cameron: Sure. So, I would say one common thing that I see across organizations that should be thoughtfully approached is: whether or not you are going to set up the CRM as the accounts receivable subledger. I mean it’s a natural set.
It makes a lot of sense as your accounts receivable subledger really needs to contain all the detail that supports your general ledger account and your CRM contains all of your revenue transactions or donations, your payment history from your donors. So, it makes lots of sense. What I don’t see always done is that that fact be communicated across the organization.
I was on a project recently where we were doing policies and procedures around a financial system and we learnt through meeting with various groups of folks that actually no one in the organization outside of accounting knew that the CRM was serving in that capacity. And when the CRM is treated as your accounts receivable subledger, the transaction data needs a little bit more attention, needs to be treated more like data in your financial system. And so, you just want people to be aware of that, you want to educate them on that and the other thing I would consider when you are looking at building that kind of integration is: you are going to need reconciliation processes. We strongly encourage our clients to document these reconciliation processes for many reasons and I really would strongly encourage anybody to make sure they do so when they are doing that kind of integration.
Peter Mirus: Thanks Debbie. Peter, do you have anything to add to that?
Peter Gross: I was already starting to add something, but apparently, I was mute, so I will try again. No, I really like what Debbie said. There’s a couple of things I would encourage people to think about when thinking about a CRM to ERP integration.
The first one is a lot of organizations we talked to and worked with have a tendency to be a little overly focused on automated integrations. Meaning: I want to be able to click a button in my CRM and the data flies into my financial system and no one ever has to know the difference. The truth is: that’s a little bit of a unicorn. It’s a difficult thing to actually accomplish even if you have both RE and FE, there is often some steps in there. And, the truth is, if you develop a good process and a good categorization scheme for gift transactions, for most organizations, the “integration” isn’t really all that complicated. And, for a lot of organizations, it can really be handled through a file transfer that happens.
Some organizations do it once a day, some do it three times a week, some do it every — you know some do it twice a month. It sort of depends on volumes and all of that. So, don’t worry so much about automated integration, although there is some — are some organizations where that case is pretty clear.
The other thing I would encourage folks to think about is: what level of detail do you really need to come across into your financial application? Historically — and I think Peter alluded to this earlier, historically, because accountants didn’t trust what was coming out of the fundraising system, they had a tendency to want every bit of detail in there. They were afraid if someone asked them a question, they wouldn’t be able to get the answer and they’d have to go into the fundraising system and they did not use the fundraising system and it was confusing and et cetera.
If the fundraising system is well-organized, and I realize that’s not a guarantee, but we help lots of folks get there. If the fundraising system is well-organized, most organizations should be able to send data over in summary rather than in detail. And most — that’s our recommendation for I would say for most organizations that we work with. There are certainly exceptions and the exception I gave before about organizations that really have some larger and complex gifts, some organizations will say you know what, 98% of our gifts are going to come over in summary, but if it either hits a certain dollar threshold or if it’s a certain kind of complex transaction, we are not going to bring that over in summary. We are going to bring that over in detail. So, there exceptions can be made. But, the simpler that process becomes, the less onerous the either integration or file sharing — file transfer becomes in that situation.
Peter Mirus: Yeah, that’s — those are good points. Move on to the next question. I guess we just go to the next question.
We are thinking about changing our CRM and/or ERP system to help solve our financial data flow problems. How should we approach this process and what system should we consider?
Is it a loaded question?
Peter Gross: It is and it’s my favorite question. It’s my favorite question to answer because I generally don’t answer it directly, meaning it’s difficult to say: “You should go to the Raiser’s Edge or Salesforce or anything else… or to Intacct or to Financial Edge.” or those kinds of things. Because the question was phrased in accounts in sort of within the context of solving financial data flow problems, really the most important thing to be thinking about is many of the things that we’ve talked about already, Financial data flow problems are not about the underlying technology. They can be.
There are certainly some systems that do it better and some systems that do it worse. If you are on a very old legacy system, it can be very challenging in some ways either on the CRM or the ERP side, but the truth is, these are usually business challenges.
If it’s not flowing properly, it’s largely because of how it is categorized, the process is in place to create the transactions and then send them over. The match between how the CRM system is configured and the ERP system is configured. Those are usually much, much more important questions that frankly should be answered first. Then based on that business solution, identify what systems we need to switch. Systems number one and number two, what systems might be the most effective in not only to transfer data? Which is important? But not by any means an overwriting concern, but all of the other ways in which those system might help you run your business more effectively.
Peter Mirus: But, I think you need to look at the whole picture, I mean the specific solution you select depends entirely on your requirements, and when you are making such a big purchase decision, you should look at those requirements as broadly as possible.
I would say that generally our clients are moving from what I might call legacy or on-premises solutions to Cloud solutions with better web capabilities on the ERP site. More dynamic charts of accounts generally speaking have better data integration or import-export tools, better APIs, much better workflow management capabilities.
On the CRM side, I think we’ve seen organizations move from outdated systems to modern or modernizing solution. So, modern solution I might put, Salesforce or EveryAction into that category for modernizing, I would say RE and XT falls into that category. On the ERP side, it’s been mostly what we’ve been hearing lately and seeing that our clients is Intact and NetSuite. A lot of clients in the Microsoft Office 365 ecosystem or that are otherwise where Microsoft centric wonder about Dynamics, 365 ERP in part because whenever they add Office 365 licenses, they are offered licenses for Dynamics.
We think for most nonprofit organizations, the Dynamics 365 ERP won’t be a good fit. It isn’t a mature enough product for the average nonprofit. So, again, there is a lot of different things to consider, a lot of different products to consider. We help clients go through structured selection processes — assessment and selection processes that leads to choosing the right technology.
It’s way too big of a subject to get into in any depth of the day, but those are some of the solutions that we see and help our clients consider. I’ve been doing a lot of work with Intacct lately and has been very good at solving a lot of problems for my clients.
Here is a related question:
Have you ever had two nonprofits who needed essentially the same application share the development cost?
I have, yes, particularly when Salesforce was new to nonprofits. I’ve heard of other instances. Vendors usually shy away from it because it’s unclear from a project governance standpoint who is driving the requirements and I would say that 95% of such projects usually don’t end well or had some kind of failure that results in a reimplementation later on. Debbie, I know you’ve had some mixed experiences with this.
Debbie Cameron: Yeah, I had client partner with another organization. They were similar-sized and they needed some functionality that didn’t exist and they had chosen — both chosen the same CRM system to implement. They were not successful.
The main problem, we spent a lot of time lobbying the vendor to agree to do it, and then once the vendor agreed to do it, we’ve launched into design. And, it took a couple of weeks into design for us to realize that while on the surface, our requirement seemed alike, when you dug into the details, they were not. And so, we basically had to start from scratch independently.
Both organizations did and we had wasted a lot of time lobbying the vendor and then going through that design and ended up having to pay for it, both the joint effort and then the redesign. So, that was not successful.
There was another instance where two organizations, they pulled together and the requirements ended up being fairly even from the detailed perspective being fairly similar. So, we were able to get development to a certain point and we were able to share that cost to a certain point. I would say there was some hidden cost there in terms of just design taking longer when requirements were communicated differently even though it was the same requirement getting through the different terminology and taxonomy of the organization.
So, it took a little longer, and then in the end, when it was delivered, we still had to make it fit the unique needs of our client and the other organization had to work to make it fit the unique needs of theirs. So, all in all, in that second effort, it was more successful and I do believe we saved some money, but I don’t know that the amount of money saved was worth the extra time it required of the staff and the project team.
Peter Mirus: Yeah, I think — sorry, go ahead Peter.
Peter Gross: No, I was just going to say if you know one of the things Build Consulting says a lot is that 50% of technology projects fail and I would say close to 100% of those project failures are single organizations trying to get things done.
If you just take the example we’ve been talking about today, which is how challenging it is to get 2 departments with different perspectives thinking about something as relatively simple as a gift record in a unified and collaborative way, and those are people that all answered to the same executive director, CEO.
Anytime you add a different entity into the mix, the complexity level shoots up and the chances of success goes down. That doesn’t mean that there is never a case where you could make that happen, but it’s very, very difficult and would take an extremely strong project team to be successful with that.
Peter Mirus: Yeah, I mean it depends on scale and a number of different things, but yeah, without knowing more about whoever submitted that question, feel free to follow up with us if you have some specific stuff and we will be happy to give a more informed viewpoint. But, generally speaking, that’s not worked out well in our experience.
Peter Gross: Yeah, I know. I should just say Peter that I know there are — there had been examples in the past and this was a while ago, but Raiser’s Edge customizations, which I will grant you back then was not an easy thing to do, but folks that came up with Raiser’s Edge customizations and then were able to recoup some of the cost by sharing those with other organizations who maybe took that customization and made some tweaks to it. That kind of approach is probably more likely to be successful than trying to build something from the ground up with two different organizations or more trying to figure that out.
Peter Mirus: Right, but then you have to be willing to be in that business so to speak and know what’s what.
Peter Gross: I agree.
Peter Mirus: Yeah.
Peter Gross: Yes indeed.
Peter Mirus: So, we’ve got time for about one more submitted question and we did get a lot of questions that are like this, that are sort of more appropriate to ask your accountant or auditor. But, the question is:
What items in the new FASB financial reporting rules have the biggest impact on nonprofit GL structures and GL feeds from the CRM system?
Peter Gross: Please don’t give that to me Peter.
Peter Mirus: I am assuming I will take responsibility for this. I am assuming this question is pertinent to FASB Topic 606 which is related to revenue recognition standards and the thing I will say about that based on my awareness of the 606 protocol or framework is that it pertains primarily to contract relationships between a nonprofit and a customer.
So, where the contract is implied or have some sort of pay for performance or some sort of fee for goods or fee for service component. An example of a relatively simple and at the same time complex example of this might be: if you were a donor and you buy a ticket for a fundraising gala event and a certain amount of the ticket value is provided to you and there is sort of a contractual obligation for the organization that provided you with a certain value whether it’s the meal or other perks in exchange for that and then a portion of it’s also tax deductible.
So, essentially when you recognize that revenue, you might have to recognize that it’s different. That it’s split at different times in different ways.
But, I think for organizations that already have GL accounts in place for those kinds of sort of contractual or fee for service or fee for good type of situation, the GL might not need to change all that much, if at all. It’s more about management making the decisions to clarify when an organization is in a contractual relationship with a, you know, “customer” or not. What are the performance expectations within that contract relationship and how those need to be estimated? The value of the transaction is applied and all of that different kind of stuff.
If you are interested in learning more about that, Grant Thornton put out a great article on that subject. You could go Grant Thornton, the nonprofit 606, you will see a good article about how nonprofits can implement those revenue recognition standards and it encompasses both policy compliance technology and reporting and it’s written pretty accessibly. At least, I could understand it. That means generally it’s accessible.
So, that’s all we have time for today.
Really — we really appreciate everybody coming out to attend this webinar and the time that it’s taken for you to participate.