For example, I’ve talked with research department administrators who can’t get records from the centralized accounting office to accurately track the department’s revolving funds, clinical income funds, and other revenue streams. These reports are critical for departmental budgeting, as well as for tracking encumbrance, expenditure, and balance information.
For many organizations, it might be time to consider implementing a shadow accounting system.
What is a shadow accounting system?
The term “shadow accounting system” refers to a set of records maintained at a local or departmental level–independent of the centralized “system of record” maintained by the larger institution. Sounds vaguely mysterious, right?
Even before automated grant management systems, shadow accounting systems have existed, certainly at research labs. For example, in previous decades, it was common for some research lab staffers to track account balances by hand in their lab books.
When implemented carefully, shadow accounting systems are an option for many small departments within larger institutes, or research labs at colleges, universities, and research hospitals.
Closing the gap
It is a given that a central accounting system emphasizes institutional accounting. It’s the big picture of accounting, the view at 10,000 feet, focusing on the forest and not the trees.
But sometimes you need to focus on the trees. Most centralized accounting systems simply don’t provide everything needed to adequately run a research lab or department. Nor do they provide the flexibility to produce detailed and specific reports. They were designed to handle things like payroll and taxes, not the details of research grants. (In fact, relying on accounting software to manage awards is risky and can put you in danger of noncompliance. Learn more in this free whitepaper.)
So the process of developing a shadow accounting system has evolved to close the reporting and accounting gap.
When to implement a shadow system
In general, it makes sense to consider a shadow accounting systems when:
- The institution’s central accounting system can’t provide enough detailed information.
- Departmental information is not readily available in a usable form, or information must be manually assembled or organized.
- There is too much lag time between incurring an obligation and it being posted to the central records.
- There are tangible resource savings to be gained, especially in the area of improved decision-making and removing manual bottlenecks.
A department is wise to implement a shadow accounting system that was developed by someone experienced and who’s gotten significant input from departmental management. That way, the system is better able to deliver customized and detailed reports that serve departmental needs, rather than general reports that aren’t as useful.
Shadow accounting systems in action
Many organizations have turned to research administration software. The solution benefits many small departments, centers, institutes, and research labs at colleges, universities, and research hospitals.
These departments use the solution as a financial accounting and a departmental management system. Emphasis is placed on maintaining up-to-date information and generating reports not provided by the centralized system used by general administration.
Departments can track university-defined accounts (funds) and user-defined cost centers for managing special commitments (such as faculty startup funds or internally sponsored research) within a department.
One department accountant told us, “My job is a lot easier. It’s great to use a program that’s designed for universities, rather than trying to adapt to a cumbersome corporate accounting program.”
Get help managing award funds
Are you facing the drawbacks of trying to use accounting software to manage grant funding too? Check out the whitepaper below:
