4 minute read
TUTORIAL ApprovalMax
by XU Magazine
How to improve financial control in not-for-profits
Not-for-profits (NFPs) belong to the types of organisations that most frequently outsource bookkeeping, accounting and finance matters. For delivering such services to NFPs, accounting practices rely heavily on the processes within these organisations and, in particular, the financial controls that have been installed.
@ApprovalMax
Konstantin Bredyuk, Director, Product, ApprovalMax
With roots in business process management and optimisation software development, Konstantin has undertaken hundreds of product implementations for ApprovalMax clients worldwide.
Konstantin has been advising numerous organisations on implementing automation, financial controls and client collaboration capabilities using Xero-based trusted app stacks, with business profiles ranging from SMEs to large accounting and advisory practices.
W
hy financial controls are critical for not-for profits
Due to their business model, typical not-for-profits have rather rigid and limited budgets determined from outside the organisation. At the same time, spending needs of NFPs are not that different from those of profitoriented businesses as they too have utility bills, purchase goods and reimburse expenses.
However, NFPs are faced with much stricter requirements in terms of authorisation transparency, spend traceability and audits.
And, NFPs are generally not very tech-savvy or, for that matter, well-versed in accounting. Most of them have “external staff” who generate expenses or are responsible for authorising spending.
How to set up proper financial controls
Financial service outsourcing practices serving NFPs need to go well beyond common compliance services and get deeply involved in both defining and enforcing financial controls across the client’s operations. At the very least this involves: • Working closely with the client to identify how their money is spent. In other words – get a real-life picture of who spends what, when and why. • Set up proper formal authorisation processes that make sure all spending is properly authorised by the appropriate people within the client’s organisation – before payment takes place. • Provide detailed audit trails to document that the implemented approval process has been duly followed.
Spend control options: proactive, reactive, hybrid
There are several options for controlling spending, with each one focusing on a specific spend stage.
Proactive spend control works well when there is a formal buying process, e.g. with purchase orders. By setting up controls around purchase orders (who is authorised to raise them, what goods can be ordered, which suppliers can be selected, etc.) and establishing a robust review and authorisation process, proactive spend control can indeed eliminate, or at least significantly reduce, unwanted spending before it occurs. Introducing proactive spend control is the right choice for not-for-profits that have many people engaged in similar, regular purchasing activities either in one or multiple locations, typical for educational facilities.
Reactive spend control ensures that incoming bills are actually correct and to be paid by the organisation. This is achieved by establishing a transparent review and authorisation process for all invoices to verify details like the amount, supplier payment account, etc. before any money is paid. It also serves as an additional fraud control layer by allowing to filter out fraudulent or erroneous bills.
The hybrid approach combines these two options and serves as a comprehensive spend control framework. It enables to check the details of finance documents, to compare what had been ordered in a proactively controlled process with what is being billed and confirms that the ordered goods or services have actually been received. This cross-reference capability is called X-way matching.
Establishing proper financial controls may seem tricky but with the right tools any practice can do it. A powerful app stack for NFPs contains three essential components that make spend management effective, efficient and fully digital: • At the core of the app stack is the cloud accounting platform
Xero, which also serves as the system of records for all preintegrated apps. This provides a clear financial overview of the whole organisation in real time and enables not only informed decision-making but also simplifies collaboration within the organisation as all people involved see the same figures.
A cloud accounting platform can be accessed from anywhere any time. That’s especially important for NFPs because volunteers usually don’t spend a lot of time in the office. With a cloud solution, managers can keep on top of finance, reimburse volunteer expenses or send invoices on the go. • To maximise the time saving achieved by switching to a cloud accounting platform it makes sense to add a tool for digital data capture. Data capture software automates manual data entry from paper into the accounting system with pinpoint accuracy and organises all data using a mix of AI and human sorting. Document data is captured by simply taking a photo with this app, or by forwarding receipts to a dedicated email address.
The tool then extracts the relevant information from the submitted document and allows to review everything before publishing it to the cloud accounting system. • A process automation tool like ApprovalMax moves the approval process outside of the accounting platform to keep external stakeholders out of it. With ApprovalMax it’s easy to set up multi-layered bill and purchase order approval processes, which also provide a record of who approved what. It’s much faster as there’s no need to carry paper documents around or wait for someone’s approval via email. ApprovalMax is also very useful for audit purposes because it automatically creates searchable reports that show a complete picture of all approval-related details, providing both a good aggregated view and the ability to easily drill down for any lowlevel details needed to perform analyses. Implementing such an app stack automates time-consuming manual procedures and delivers all data in real time – giving a major boost to efficiency and traceability. Processes that require collaboration can be set up in a way that’s convenient for all participants.
FIND OUT MORE...
Find out more about spend control for NFPs in the ApprovalMax playbook:
