Choosing a fund accounting system

Governmental accounting systems have much in common with commercial systems. They differ, however, in significant ways, primarily because of tighter requirements involving procedures, management objectives and reporting.

A government organization is required to track its funds based on certain regulations, restrictions and limitations that do not necessarily apply to commercial funds. For instance, each of the governments funds must be treated as a separate entity and include its own general ledger and individual finance reports. Some governments also must report on their funds in aggregate.

Therefore, choosing the right fund accounting system is critical and requires matching governmental operations with the appropriate software capabilities. Answering certain questions can ease that process. Those questions:

* Is the system a true fund accounting system, or is it a modified commercial application? A good fund accounting system is developed from the ground up. A commercial system with fund accounting overlays may not work.

* Does the systems budget planning allow for global changes? Fund accounting operations tend to have a very large number of accounts. Global change capabilities allow users to create and change budgets with minimum input.

* Does the system have a large free-form account number application? Most fund accounting applications require additional groupings and breakdowns. It is not unusual for nonprofit account codes to exceed 20 positions and include a mixture of numbers, letters and special characters. Thus, the necessary account structure should be part of the specifications.

* Is the system a batch or real-time system? Real-time processing, necessary to check budgets and spending limits, is generally much faster than a batch system. Government organizations benefit from real-time processing because it saves time and money by eliminating certain processing steps.

* Does it process encumbrances? The ability to process encumbrances is critical for many government operations. (If the system is encumbered, it should have real-time processing.)

* Is grant/project tracking available? Grants and projects often have different reporting requirements. They must be reported for different periods, and grants require reporting on a to-date basis.

* Can the system handle the number of funds required? A good system is not limited in the number of funds it can handle.

* What about compatibility? Some products merely have a few compatible graphical features but not the consistency necessary to support the systems full platform.

* Can the system pay invoices from multiple funds using a single check? Many commercial and low-end fund accounting systems cannot. However, the feature is important because it can dramatically reduce the number of checks being written, as well as general ledger entries and subsequent balancing time.

* Does the system monitor budget spending? Budget spending controls are necessary in governmental fund accounting systems because budgets are typically mandated by law and must be followed. A governmental system should be able to test for funds availability and spending limits as invoices and checks are processed. Reports should highlight any overspending.

Governments should not hesitate to ask their vendors for a product demonstration. Better still, local officials should visit the software firm and meet directly with sales, support, technical and administrative personnel. Making the right decision requires a close look at both products and vendors.