Any organization, small or large, private or public, must handle the pressures of compliance. Nonprofits, however, have to not only ensure they fall in line with corporate-facing regulations around processes like payroll and cross-border payments, but, explains Dan Murphy at nonprofit software firm Abila, the compliance stakes are higher, more numerous and more complex than they are at the typical for-profit firm.
“The risk exposure varies greatly,” the senior manager of fund accounting strategy for Abila told PYMNTS. “It varies around where revenue is coming from, the requirements attached to that revenue and the scale of operations. Plus, there are the types, like payroll functions, that nonprofits are having to comply with, just like for-profits, in addition to the other complexities they’re having to deal with specific to nonprofits.”
The impact of these noncompliance risks can also vary, Murphy explained, from having to take time and resources to settle the matter with a donor to getting hit with fines and other penalties.
With all of this in mind, nonprofits also have to meet more stringent requirements when it comes to their payments.
For example, when a donor provides funds to a nonprofit, the company must be able to record information like where the funds originated, and there are requirements or restrictions on how the firm can use that money. When the nonprofit makes a payment using those funds, similar information must be recorded.
“On the expense side, they have to show that the dollars were used for their intended purpose,” Murphy said. “It introduces a lot of complexities for managing both revenues and expenses for the organization.”
As one can imagine, paper checks don’t support this type of transaction data management as well as other payment technologies could.
“There is still a significant number of [nonprofit] organizations paying vendors by check,” Murphy noted. “But we are seeing a move toward electronic funds transfers, toward stored value card payments and toward outsourcing that process altogether.” Outsourcing some accounts payable processes, he continued, can allow a nonprofit to manage transaction data and ensure compliance with their payments without having to allocate a burdening level of resources to the challenge.
“Instead of spending resources on the data entry and payment process,” he said, “they can focus more strategically.”
The executive said that ePayments “absolutely” allow for more accurate and efficient payment data recording, key to nonprofit success.
“For recording the expense itself in the ledger, there is a lot more complexity behind it, to classify that transaction across programs, grants, designated purposes and, in some cases, even restrictions,” he said. Sure, a paper check can get money to where it needs to go. But with broader requirements for transaction data recording and higher stakes for compliance at nonprofits, digital payment tools can be especially helpful to the sector.
Abila recently rolled out updates to its nonprofit accounting software offerings with these trends in mind. Earlier this month, the company revealed that its Abila MIP Fund Accounting and cloud-based Abila MIP Advance have been updated to streamline accounts payable, vendor management and invoice management and settlement workflows, all with the demand for compliance at the forefront of the upgrades.
But according to Murphy, the updates were also a response to shifting needs and trends within the nonprofit community.
“Organizations are looking for greater technology efficiencies,” he said. Take invoice management: If a nonprofit has offices across geographic locations, the firm may be using different integrated systems to manage those bills, making each invoice payment a source of friction when they have to be taken care of one by one. Murphy said Abila is looking to help nonprofits ensure their integrated workflows, like vendor management and invoice management, can be handled across geographies and across systems to help the organization be able to scale up more quickly.
He also noted that Abila research found an increase in the number of CFOs from for-profits making the leap to nonprofit organizations. That, said Murphy, means these professionals expect a high level of sophistication in accounting and other financial services tools.
“We’re looking to enable those individuals to have a smooth transition by offering that complexity that they need in an easy-to-use way,” he noted.
Just like any organization, accounting has to be efficient, accurate and compliant. But with Abila’s latest report on challenges that are hitting nonprofits — a survey released in September found that nearly two-thirds of nonprofit finance professionals say compliance is now more of a burden and more expensive than in recent years — any technology that can protect a nonprofit from the legal hit of noncompliance is a plus. And as it turns out, payment technologies are critical to that goal.