Selecting accounting software.

Make sure your money-management software makes performing complex accounting tasks simple.

It seems like everyone is writing articles on accounting software. Even the word accounting conjures up visions of subjects that many in the association management field would rather leave to the experts. But thanks to a new tax law and new rules concerning which business expenses are deductible and not deductible, it is time again to review some of the functions most association executives will need their accounting software to support.

First things first: If there is one rule of association management that I have learned during my tender years it is "When in doubt, take along a hostage." What do I mean? An expert, of course. Yes, your trusty auditor. You know, someone from the firm that sends you all sorts of boring newsletters that go to the bottom of your reading pile.

Asking an auditor to help you select a new accounting system is not only the right thing to do, but it is also the safe thing to do. Ask the auditor to provide you with a checklist of functions that your new system should support. Ask the auditor to accompany you to demonstrations and help evaluate the system.

Yes, it does cost money to get your accountants involved, but it is worth it in the long run. Not only will this up-front investment pay off in future years, but it will also give you peace of mind that you have considered all of the options and chosen a system that both you and the accountants can live with. Remember the part about "live with." Be practical--it's out of line to spend $1 accounting for $1.50 in expenses. Sometimes associations have restricted funds, foundations, advertising income, trade show income, dues that are cash--instead of accrual-based until year end, prior years that have to be kept open, and so forth. It is important that the accounting firm that helps you select your association management software has experience with associations beyond yours.

So with some of my heartfelt advice in mind, here are some of the features to look for.

Standardized controls

Standardized controls, things that you must have in an integrated accounting system, include on-line batch payment controls for membership dues posting and registration fee collection as well as other regular payment collection.

The user or poster of transactions to the accounting system needs to be prompted for entry of control totals at the beginning of each batch before posting to individual records. What that means is that if you have a membership module that is integrated with the accounting system, the sum of the dues checks should equal the posting to each member's account. Remember that the dollars you collect for dues and the faces that you serve should always match up.

Another standardized control is a payment history file, by member, of all financial transactions attached to a specific service. Be sure you can also see an automatic interface with the general ledger for transfer of detail or summary totals to the appropriate account and backed up with a hard-copy audit trail report.

Look for a cash distribution confirmation report that keys on a specific cash deposit date, comparing cash applied within each module (membership, meetings, and so forth) against an operator-entered control total. You should see a financial activity report that shows the date a payment was applied to the system. There should also be an overpayment or underpayment report that lists all overpayments and underpayments for individuals.

Finally, make sure the accounting system has a general ledger distribution report that shows a detailed summary of all income applied to a specific general ledger account.

The general ledger

Ensure that your general ledger system includes the following:

* A user-defined chart of accounts containing an account number, name, and other defining characteristics. Be certain to check with your accountant closely on this one, especially if you are a full-accrual organization.

* A direct interface to all other system modules for automatic posting of validated account entries generated within each module.

* On-line inquiry to review account summary totals, direct entry of validated general journal transactions into the general ledger, and error reporting of all invalid transaction entries.

* Transaction detail available on line for a minimum of one year. You will also want to be able to track and record recurring journal entries. Make sure your system allows you to keep the books open for a prior period while processing current period transactions.

Make sure you have at a minimum the following financial statements generated automatically:

* trial balance;

* comparative balance sheet;

* comparative income statement;

* budget variance report; and

* statement of cash flows in user-defined formats.

Your system should give you some ability to project on a month-to-month basis, and you should have the ability to prepare ad hoc financial reports and statements for one-time and recurring use. It's also helpful if you can keep multiple sets of books for other legal entities, such as your association's foundation or legal counsel.

Accounts payable

Make sure the accounts payable module can do the following:

* Interface with the general ledger and a central data base to capture each vendor's name and other key information.

* Generate a detailed history record for each accounts payable vendor showing all purchases made from the vendor by invoice number, invoice amount, paid check number, and date. It's also helpful to be able to both prepare and track purchase orders within a detailed history record.

* Use a voucher entry and reporting system for entering invoices to be paid, along with a payment scheduling system to maximize your ability to take advantage of available discounts and manage cash disbursements and automatic preparation of accounts payable checks by scheduled due date with remittance advice attached. This preparation should include a listing of the items paid by vendor invoice number and also allow enough space for multiple invoice numbers or other kinds of payment messages to be printed on checks.

Make sure you are able to write checks and enter check numbers and disbursement details into an open check file, general ledger, and cash-disbursement journal. An effective system will have on-line inquiry to permit status checking on any vendor and check or voucher. It will also allow you to schedule recurring payments and have a hard-copy audit trail of all transactions.

Don't forget the taxing jurisdiction. Make sure the system will allow you to automatically create Internal Revenue Service 1099s and W-9s for everyone who is required to receive these forms. You will want to be able to track taxes due or paid back to a general ledger account, as well as track back to multiple legal entities that you might have. Finally, don't forget the ability to age those payables.

The accounts payable part of effective accounting software will include batch-processing controls and the ability to interface with all systems modules. It will be able to generate monthly statements showing the invoice number and a brief description, as well as aged-receivables reports, on-line access to cash receipt batches, and a receivables status report.

Your system should allow you to automatically generate invoices and update an accounts receivable subsidiary ledger.

Oh, and before I forget, here's a never. Never use a system that was not originally designed for a nonprofit organization or that is not flexible enough to be adapted to one. Using an accounting system that was designed for a different industry or profession is like using someone else's shoes--they will never quite fit.

Now do you understand why it is so important to bring along that accountant when you look at an accounting system? This column has only touched the surface of some of the many factors you must consider when choosing an accounting system to support your association. Ask for those checklists from your accountants and get them involved. You will be glad you did.

Kindest regards to each of my accounting friends.

Maynard H. Benjamin, CAE, is executive vice president of the Envelope Manufacturers Association of America, Alexandria, Virginia.