Word Doc: NSO_SuportedSolution_CharityAccountingClassifications_12052008.doc

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NetSuite.org Supported Solution

Charity Accounting Classifications: Chart of
Accounts, Activities (Classes), Funding Sources
(Grants) and Items

^{Best Practice Page 1 of 5 NetSuite, Inc.}

^{Last revised: October 18, 2011}

1 ABSTRACT
Charities generally define "account segments" in their chart of accounts that define different "buckets" in which to track income and expenses. NetSuite provides three configurable "buckets" to classify transactions — classes, locations and departments. This solution configures NetSuite to trace the standard buckets that charities are interested in tracking as per the model suggested in the Unified Chart of Accounts (UCOA).

• Chart of Accounts: Tracking financial accounts in the chart of accounts.
• Activities: Tracking the different things an organization does including cost pools and restricted funds tracking. (NetSuite Classes)
• Funding Sources: Tracking the things an organization does under a specific funding source. (NetSuite Departments)
• Items: Tracking revenue by how it comes into the organization.

This solution is based on the Unified Chart of Accounts developed by the National Center for Charitable Statistics (NCCS).
http://nccs.urban.org/projects/ucoa.cfm
http://www.canonprofits.org/programs/ucoa.html

2 BACKGROUND
NetSuite.org is the philanthropic arm of NetSuite, Inc. We offer charities and social enterprises product donations and service grants designed to help them accelerate and expand their social impact by improving operations and applying information technology to their mission. NetSuite.org offers grantees documented standard solutions to the business challenges that charities and social enterprises face. Our product donations and service grants are designed to help grantees implement these standard solutions. As soon as a grantee seeks to address unique requirements or implement non-standard configurations or customizations, they must allocate sufficient resources to complete the project successfully. This usually requires a qualified, dedicated internal implementation team, paid NetSuite professional services, or a NetSuite.org implementation partner

^{Charity Accounting Classifications: Chart of Accounts, Activities (Classes), Funding Sources (Grants) and Items}

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3 AUDIENCE AND ROLES
Classifications are used through the application on virtually every transaction. This solution is a critical part of the configuration of any NetSuite implementation for charities.

3.1 ROLES
This solution assumes you will be implementing the following roles:

• • In general we assume that users will be using administrator or full access roles.

4 SOLUTION REQUIREMENTS

4.1 REQUIRED MODULES
To function as described, this solution requires the following modules:

• • No additional modules are required.

4.2 REQUIRED BUNDLES
To function as described, this solution requires the following bundles:

• • SuiteDonor Bundle. It is not a formal requirement, but generally relevant to nonprofit implementations.

4.3 ASSUMPTIONS
To function as described, this solution requires the following:

• • Solution assumes activities and departments are turned on in NetSuite preferences.
  • The charity will track traditional departments (finance, development, office of the CEO, etc.) within their activity structure.

5 SOLUTION OVERVIEW
A charity classifies income and expenses on multiple dimensions:

• Chart of Account: Standard financial account. (NetSuite Account)
• Activity: Functional categorization of income and expenses. (NetSuite Class)
• Funding Source (grant): Categorization by funding source. (NetSuite Department)
• Items: Items represent the types of things you sell ― sell including donations, pledges, grants, inventory items and much more (NetSuite Items)

Many charities use chart of accounts segments to track a wide variety of additional information. NetSuite provides the capability to add two additional dimensions which can be used for its native
purpose or another purpose unique to your situation.

• NetSuite Location (or: <your renaming of location>)
• NetSuite Subsidiary (or: <your renaming of subsidiary>)

[REQUIRES NETSUITE ONEWORLD MODULE]
Often, charities use many chart of accounts segments to track information that is tracked natively elsewhere in NetSuite. A classic example would be employee. Rather than using a chart of accounts segment, transactions are already tied to employees both on the revenue side (sales person) and on the expense side.
Charities will often be more comfortable with the concept of a large number of charts of account segments since they can report on the data in a standardized way. It is imperative to set up reporting and verify it will work for the charity as part of configuring each segment.

^{Charity Accounting Classifications: Chart of Accounts, Activities (Classes), Funding Sources (Grants) and Items}
 

^{Best Practice Page 3 of 5 NetSuite, Inc.}

^{Last revised: October 18, 2011}

6 SOLUTION DESIGN

6.1 CHART OF ACCOUNTS
Upload the NCSS standard chart of accounts
http://nccs.urban.org/projects/ucoa.cfm
http://www.canonprofits.org/programs/ucoa.html

*The SuiteDonor bundle includes a UCOA import file that can be uploaded into NetSuite.

6.2 ACTIVITIES
Design your Activity structure in NetSuite following the example below. Activities are coded as NetSuite classes. Customize to your needs ― for example if you do not use cost pools, you do not need the cost pool activities.

100 Program Services
     110 Program A
          111 Activity 1
          112 Activity 2
          119 Program A Administration
     120 Program B (e.g. conference)
          121 Activity 3
          122 Activity 4
          129 Program B Administration
500 Management & Governance
     510 Governance (Board)
     520 Management
     530 Membership Development
600 Special Events
700 Fundraising
800 Cost Pools
     810 Central Services Expenses
     820 Facilities Expenses
     830 Salary & Related Expenses
900 Special Use
     910 Board Designated Funds
     920 Quasi-endowment Funds
     930 Fixed Assets (board) Funds
     950 Use Restricted Funds
     960 Time Restricted Funds
     990 Permanently Restr. Funds

6.2.1 Tracking Programs and Projects

In your activities structure, you can track program expenditures to whatever level of detail is appropriate. Sometimes, NetSuite’s project functionality provides a better level of functionality than using the NetSuite. In that case, you may have a single class — 100 Program Services — and multiple projects. If you are not using projects, you may have a structure as in the example.

^{Charity Accounting Classifications: Chart of Accounts, Activities (Classes), Funding Sources (Grants) and Items}

^{Best Practice Page 4 of 5 NetSuite, Inc.}

^{Last revised: October 18, 2011}

6.2.2 Tracking Program vs. Management vs. Fundraising
Code expenses at the appropriate level (100, 500, 700) and run an expenditure report by class to find out how much was spent in each category.

6.2.3 Tracking Cost Pools and Allocations
Any shared expenses that are divided up and allocated to specific activities of the charity first hit the cost pool classes and then are a journal created to shift funds to the appropriate activity (100, 500, 700).

6.2.4 Tracking Restricted funds
Restricted revenue is accepted into restricted classes (e.g. 960) and released through a journal entry when the restriction is met.

6.3 FUNDING SOURCES
Funding sources usually refer to a foundation or other entity that gives money to a charity for a specific purpose. That money must be tracked and a report on its expenditure issued to the funder.

EXAMPLE
ACME charity gets a $100,000 grant from ABC Foundation. $75,000 of grant will be spent on a specific water project in Kenya with an overall budget of $300,000. $25,000 will be spent on overhead expenses. Operationally, ACME will need to track activities at the project level (revenue and expenses for the $300,000 Kenya water project). They will also need to report to the funder on the portion of the $300,000 project funded with the funder’s $75,000. That report to the funder will also need to include what the $25,000 in overhead was spent on. Funding sources can be tracked in a variety of ways depending on the level of detail required for both revenue and expenses.

6.3.1 Funding Sources as Customers
This is the easiest method, allowing revenue to be accepted from a funding source (customer) and expenses to be billed to a customer. This can be challenging when there are multiple grants from a single funding sources (subcustomers for each grant is a possibility) or when you have expenses that are allocated among a variety of funders through journal entries.

6.3.2 Funding Sources as Projects
This is similar to using customers, but with the added advantage of project management functionality, which closely tracks the requirements for grants management within a charity.

6.3.3 Funding Sources as Departments
This is the most robust method allowing strong tracking of both revenue and expenses. In the most complex scenarios, a single funder might be represented as a customer, each grant represented as a project, and for each grant a corresponding department created for financial classification.
In general, we recommend coding the foundation as a customer record and the grant as a project.

6.4 ITEMS
It is critical to track revenue as items within NetSuite since the native revenue / item reporting mirrors charity needs. Often this information will be coded in the chart of accounts, however, buy using the item structure; it more seamlessly fits into NetSuite’s standard accounting processes.

^{Charity Accounting Classifications: Chart of Accounts, Activities (Classes), Funding Sources (Grants) and Items}

^{Best Practice Page 4 of 5 NetSuite, Inc.}

^{Last revised: October 18, 2011}

6.4.1 Sample Item List
Gift
     Donation
          Annual Campaign
          Matching Gift
          Online Donation
          Regular Donation
Grant
In Kind
Major Gift
Pledge
     Planned Gift
     Regular Pledge
     Recurring Donation

6.5 USING COSTS POOLS
Cost pools are used to divide up shared expenses between activities and funding sources.

EXAMPLE
ACME charity allocates rent payments based on the hours worked by employees on a grant basis. This month, staff worked 25% on Grant A, 25% on Grant B and 50% on Grant C. Since Grant A & B are both part of activity 110, the split for activities is 50% on 110 and 50% on 120. As shared expenses like rent come in, they are assigned to a cost pool activity. At the end of the month, a journal entry empties the cost pool activity and transfers the appropriate amount into the different classifications. In this case, if I have $10,000 in the cost pool at the end of the month, I’ll create journal entry(s) that put $5K in activity 110, $5K in activity 120, $2.5K in Grant A, $2.5K in Grant B and $5K in Grant C.

6.6 TRACKING RESTRICTED FUNDS
IRS regulations require an increasing number of charities to track restricted funds and report end of the year balances on their form 990.

EXAMPLE
ACME charity gets a 2 year grant from the ABC Foundation for $10,000. When they deposit their $10,000 check, they classify the deposit with activity 960 since it is time restricted (a two year grant). Since 50% is immediately available, a journal entry is created to move $5K from 960 to 100 since the grant is for general program services. A second journal entry can be immediately created which will post on January 1 of the next year, which will move the remaining $5K to activity 100.

7 SOLUTION IMPLEMENTATION
To set up you NetSuite account, you will:

1. Create a chart of accounts for your organization
2. Create an activity structure that describes your organization
3. Create a list of funding sources for your organization
4. Create a list of items that describe the different ways your organization receives revenue