8 Questions to Ask when Evaluating Financial Applications

Introduction:
Church members not only look for spiritual leadership from their pastoral staff, but also have expectations that donations made will be used wisely. Often, they expect leadership to provide financial reports produced from a reliable accounting package verifying their trust.
Evaluating Financial Applications
Fortunately, pastors and church leaders do not have to be an accountants to find out if a product is a good fit for their ministry. They just need to ask the right questions. The following list should be helpful to most ministries.

1. Is the product designed for nonprofit organizations?
Most accounting packages are designed for businesses, and businesses are required to keep records to satisfy federal and state income tax laws. On the other hand, churches and religious organizations have very different needs that are no less complex than for-profit businesses. As long as the church does not have unrelated business income, it does not have to file income reports with the IRS. However, it is accountable to the membership, donors, and occasionally to a foundation or other organization that has provided a grant.
These donor groups have expectations that donated funds will be used for the intended purpose. For example, some donations are received for a particular ministry, activity, or building project. Therefore, nonprofit accounting software needs to be able to track and report on each of those activities.

2. Does the chart of accounts accommodate a structure that complies with FASB and GAAP requirements?
FASB (Financial Accounting Standards Board) and GAAP (General Accepted Accounting Principles) provide guidance for acceptable tracking of transactions and related reports. These guidelines are used by public accountants and auditors when advising or auditing records. A common requirement of nonprofit groups is to have a place in the balance sheet within the capital section devoted to multiple closing accounts. (For-profit software often has one closing account labeled “retained earnings.”) Reports then use information from the net asset area to show the funds available for distribution.

3. Does the payroll application handle clergy compensation and Form W-2 correctly?

A payroll application should be designed to easily handle the complex pay package that many clergy have and also accommodate all of the payroll requirements of non-clergy staff. It should also be able to produce required federal and state tax reports including Forms 941, W-2, W-3, as well as the set of reports required under the Affordable Care Act.

4. Does the software have a method to keep sub ledgers in balance with the general ledger?

The review of a set of books usually includes a check of accounts payable, accounts receivable, payroll, and contributions against the general ledger. This is usually done by creating a report from, say accounts payable for a given month, and then comparing it to a statement of financial position (balance sheet) for the same period. Allowing changes to AP or GL without involving the other should not be allowed.

5. Does the General Ledger restrict changes to finalized entries?
If the software uses a checkbook-style ledger, or allows changes to finalized transactions, then it becomes easy, and perhaps tempting, to manipulate the books.

6. Does the software track changes?
Most auditors check to see if there are changes made to original entries. Therefore, it is important that the software limits that type of activity and tracks any changes that are allowed.

7. Does the software’s standard reports allow omission of transactions?
Some software packages only have drill-down reports with various filters, which can produce reports that may not include all transactions, thus skewing the financial picture.

8. Does the software provide a method to generate consolidated reports for committees, congregation, individual ministries, etc.?
Most churches need a set of presentation reports designed for select groups. If the software does not have this option, then the staff is usually forced to create them in Excel.

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