Often the most essential element to a nonprofit organization’s overall success is the mission. What is the organization’s purpose and why does it exist? The mission says it all, and organizations that have a clear and relateable mission can bring immense value to their constituents and the community they serve. Some agencies will have their mission statement written out in detail along with their vision and other attributes. For other organizations, it may only be implied in their name. But, all organizations that gain nonprofit status in some form or manner must have a kind of worthy purpose. A reason for being.

As accountants, connecting the nonprofit mission to the agency’s accounting system can be a daunting task. But, it can be an important link. This connection helps steward the organization in the right direction and ensure economic viability. The board and stakeholders of an organization rely on the accounting records to measure, in financial terms, how well the agency is striving to accomplish its mission and goals. So, are there some ways to accomplish this task? Sure, there are, and it is an important trend in nonprofit accounting methods. Let’s take a look …

One way, is to relate the “program services” that support the organization’s mission to a category in the accounting system. Program services are those activities that nonprofits undertake to achieve their goals. They represent the accumulation of effort performed by the staff – super important! Therefore, having an accounting system category to track each program service is essential. The nonprofit’s decision makers need to know precisely how much is being spent on each program service to determine their effectiveness. Program service activities that also bring in revenue would likely need to be tracked, as well.

A modern, true fund accounting system should allow you to track these program service categories, and other categories, in segments.  A segment is simply an accounting software component that holds a history of financial transactions. For example, a segment can be established in your software that lists each program service activity as an item in the chart of accounts. When transactions are recorded, every dollar spent or received can be classified to the appropriate program service. Later, the total of those monies spent or received are available in a multitude of financial reports. The nonprofit’s management can then use information contained in these reports to measure effectiveness of the various program services towards the organization’s mission.

This technique provides great benefit and allows staff to improve operational results by measuring the value of each program service activity. You can use segments to track other financial categories too, such as funding source. Using a segment to track each funding source or grant would give management insight as to how each program service is being financed and how much funding remains at the end of a reporting period (such as month, quarter, or year). Other segments can be established to track department or location or even project. Imagine detailed project-based accounting reports right there in the accounting system – no more spreadsheets! The possibilities are endless.

About the Author

Tim Ziegner, is the President of Ziegner Technologies, Abila Business Partner of the Quarter. Each quarter, Abila recognizes the top Business Partner based on its continued support in helping nonprofit organizations fulfill their missions. Abila Business Partners are trusted experts authorized to resell and implement one or more Abila products.